Re: "Money" on Qualcomm
>> The Return Of Qualcomm
The troubled wireless technology innovator is staging a comeback of sorts. Should you give this stock a second look?
Money Magazine
David Futrelle
December 12, 2000
money.com
Remember Qualcomm? For those who got in early, it looked like the greatest stock pick in the history of the world -- returning a staggering 2,619 percent (yes, that's four digits) back in the glory days of 1999. For those who hopped aboard in 2000, however, Qualcomm has been a painful object lesson in the dangers of momentum investing, losing some 70 percent of its value faster than you could say "code-division multiple access" -- which was, incidentally, what all the fuss was about in the first place.
You see, in many ways a bet on Qualcomm is a bet on CDMA, an innovative wireless technology that uses scarce airwaves much more efficiently than rival technologies for transmitting voice signals. With literally hundreds of CDMA patents, Qualcomm has set itself up as something of an intellectual property gatekeeper, extracting licensing fees and royalties when cell-phone makers like Motorola use Qualcomm technologies in their own products. It's a beauty of a business model: After the cost of developing the technologies is covered, additional royalties are just gravy, which is why Qualcomm can boast pre-tax profit margins of nearly 40 percent, a figure most tech companies would kill for. No wonder, not so long ago, some were calling Qualcomm the emerging Microsoft of the wireless age.
And for the past five months or so, the CDMA king has been quietly staging a recovery, watching its stock price stagger relentlessly upwards as tech stocks around it went to hell. It's been a bumpy road, to be sure: Last week, the stock soared more than 8 percent after China's Ministry of Information said it would support Qualcomm's plans to develop a CDMA network. This week the stock fell sharply after an international court ruled that the company would have to share some $80 million of its CDMA royalties with a partner in South Korea.
These seemingly arcane developments neatly symbolize both the promise and the peril of investing in Qualcomm. Though regarded by many as a superior technology, CDMA lags far behind other wireless standards like TDMA and GSM in the real world, namely in Europe. That's why Qualcomm has been trying so hard to get its foot in the door in China, which is, as you might imagine, a few steps behind in the wireless revolution. The memo the company just signed with the Chinese government is a step in the right direction. But so far it's only a victory on paper -- there's no guarantee that the network will ever be built.
The second obstacle is the extraction of licensing fees and royalties, battles that often end up in court where Qualcomm faces a troubling Catch-22. If it doesn't move to protect its patent claims, it will lose a lot of revenue. But if it enforces its patents aggressively (as it has), it may alienate potential customers and drive them to seek alternate technologies, as some already are doing. And no matter how aggressively Qualcomm fights, it can't prevent courts from ruling against it -- as we saw this week in South Korea.
None of this matters terribly much to the Qualcomm fans. It's fair to say they're a devoted bunch, despite this year's anguish. Last time I poked my nose into the Qualcomm message boards on Yahoo! Finance, the regulars were ganging up on one poor soul who had the temerity to suggest that it was a tad too optimistic to assume that the stock (currently at $91) would soon rocket above $200. Surely this dastardly critic had to be a "paid basher," working for some nefarious short seller.
Not terribly likely. You don't have to be a shortseller to wonder about this renewed enthusiasm. Indeed, with the stock currently trading at 72 times estimated earnings, Qualcomm seems mighty expensive already, especially for a company surrounded by so many big questions. To be worth 90 bucks, much less $200, Qualcomm would need to dominate wireless as thoroughly as Microsoft dominates computer operating systems, and that's something that seems increasingly unlikely to happen. Don't let the bulls tell you Qualcomm is due for a repeat of 1999 -- I'd hang up now. <<
- Eric - |
