I listened to Qualcomm's conference call relating to its earnings report. My impression of the call is different from those I remember expressed here. I'll try to explain.
Someone mentioned that it would have been better if Irwin Jacobs had taken a larger roll in the call, citing his charismatic personality. I've seen him speak live and I've heard him speak on numerous conference calls and occasional interviews. I'd never use the word, charisma, to describe him. That's not a criticism; it's not necessary that the CEO of the companies I invest in be charismatic.
Some people felt the officers of Qualcomm weren't as prepared as in the past. I didn't notice any difference. I felt the style of their presentations and the way they responded to questions was about the same as usual.
I remember that some (including me) used to feel that Sulpizio (sp?) came off as a little bit too much of a cheer leader and too willing to knock the competition in a marginally unprofessional style. Not remembering exactly who joined me in expressing those opinions, I wonder if it is the same people who notice that there is none of the rah-rah stuff in current conference calls and feel the tone and demeanor of the call has gone too far in the other direction. I feel the tone and demeanor are fine. For this investor, the officers inspire confidence.
Last and most important, I'd like to address the issue that SAB 101 had a material effect on earnings even though management told investors in Q3 that wouldn't be the case. SAB 101 came out in December, 1999. The SEC filing for Q3 tells us that "The Company continues to monitor interpretive guidance from the SEC and developments in Emerging Issues Task Force discussions of Issue 00-21, Accounting for Revenue Arrangements with Multiple Deliverables." Thornley was very clear (at least in my mind) in the Q4 conference call that as the company continued to monitor SEC guidance, a "strict interpretation" of the regulation (a phrase he used three times in the call) did indeed result in a change to earnings, changes that management didn't anticipate when they reported Q3 earnings. Those changes didn't have to do with the multiple deliveries or the value of the license. Instead, the critical issue involved future patents even though the company isn't required to issue future patents to fulfill the terms of the licensing agreement. It is management's "strict interpretation" of that aspect of the regulation, an interpretation Thornley didn't have as of Q3.
He in fact stated in the Q4 call that there were subsequent SEC bulletins that caused him to arrive at this "new" interpretation. The specific time line of the bulletins wasn't mentioned. We don't know if they came in after the Q3 conference call. I infer from his comments that they came in after the call took place, but I really don't know for sure.
That leads me to think that the worst-case scenario is that management didn't properly assess the impact SAB 101 would have on the company's earnings even though it was initially issued in December, 1999. The best-case scenario is that as bulletins were reviewed, the new interpretation was required. Regardless, I don't see any evidence of deception that Judith apparently saw. (I don't know if she had heard the Q4 call at the time she felt deceived. If she hadn't heard it, I don't know if she's had the time to listen to it. And I don't know that listening to it would alter her impression about the issue of deception.)
A related question: We know the Nokia licensing fee will be amortized over 7 years. Some licensing fees will be amortized over five years. Management suggested that the average will be about six years. Regardless of when the earnings are recognized, I believe the cash is recognized in the cash flow statement when it is recieved. Am I right about that?
If I'm right, that's further evidence that investors need to focus on cash flow, not just earnings. By the way, management is currently projecting FY02 cash flow from operations at $1.4 billion, compared to $1.2 billion in FY01.
--Mike Buckley |
