Spred:
It's an interesting analysis, and if you buy the author's conclusion of $11.4 billion in pre-tax earnings, assume a 35% tax rate, and a P/E of 47 (PEG of 1.0), QCOM's stock price should be around $435 in 5 years time.
But the author seems to be assuming that ASP's for both CDMA handsets and ASIC's will remain more or less constant over the next five years. If you use the 60 million CDMA handset sales figure for calendar 2000, the 52 million ASIC's shipped over the last 4 Q's, and constant ASP's, you arrive at 230 million ASIC sales and 850 million CDMA handset sales in 2005 - pretty big numbers. And that's using the assumption that ASP's stay constant - which IMO is highly unlikely. Even QCOM has already said that they expect a 20% decline in the ASP of handsets next year, so that even though they expect 90 million handset sales (a 50% increase over CY 2000), licensing revenues from handsets will only grow by about 20% (1.5 x 0.8 = 1.2).
With some realistic assumptions about the decline in ASP's - say around 10%/year - ASIC and handset unit sales would have to be 390 million and 1440 million respectively to achieve the $$ revenues the author projects - overly optimistic IMO. You also have to take into account the "law of big numbers" that companies like DELL and CSCO have run into. The historical (2 years or so) revenues used in the author's analysis are growth rates coming off a small base to where QCOM is today, and it's unlikely that these historical growth rates in revenues can be sustained.
Still, it's nice to speculate on the upside, and I'd be foolish to think that there's no way QCOM can reach $400+/share sometime in the next 4-5 years. Heck, I'm confident we'll be back to $200 within the next 12 months!
David T. |
