QCOM CC, results, and my comments:
1FQ02 results:
EPS: proforma 0.23, GAAP 0.17, compared to year-ago 0.23 and -0.52
revenues 693M, compared to year-ago 655M (= +6%).
3G 1X chips were 40% of shipments.
Gross margins 66%, continuing that stable LT pattern of GMs in the mid-60s.
Guidance:
2FQ02: proforma 0.19-0.21 EPS, 3G chips 7M out of a total of 13-14M.
For FY02: Revenue growth expected to be 5-15%. Pro Forma EPS $0.90-0.97. Previous guidance was $1.15; accounting changes cut that by 0.14, and the rest of the reduction is blamed on the recession. This is "based on the sale of 80-90 million CDMA phones in calendar 2002 with a 0-10 percent annual decrease in average selling prices of CDMA phones"
CC notes:
We remain optimistic of a ramp-up in sales in the second half of 2002.
We expect consumer excitement this year, from the capabilities available in 3G phones.
The transition to 1X and 1X-EV will give a competitive edge to those carriers who adopt it.
We expect to increase our CDMA chip market share, in spite of what Nokia says.
The transition to 1X will happen rapidly, and be complete by the end of 2002.
(Anyone else who listened to the CC is welcome to correct any mistakes I've made, or add anything else important they heard.)
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My comments:
QSI = QCOM Strategic Initiatives = a black hole that swallows up all cash flow. Under "Selected Cash Flow Information", for the quarter there is +264M from "net cash provided", almost exactly balanced by -252M of "transfers to QSI". Yesterday it was Globalstar, today it's Vesper, what happens tomorrow?
A lot of companies have recently started giving guidance in GAAP numbers, but not QCOM.
If 1X chips have higher ASPs, but they expect ASPs for phones to decline (by 0-10% in 2002), then they are expecting to get a higher % of each $ spent on phones. I don't understand why they should expect this. I don't see evidence that their bargaining position has improved, relative to others in the supply chain.
Rollout of 3G is finally here. It's no longer a hope for the future; it's a present reality. Qualcomm is doing everything that a Gorilla is supposed to do: it owns a Proprietary Standard, that standard has been accepted worldwide, and it is necessary in a mass-produced product. QCOM is doing everything the Book says it should.......except for the results. Where is the Tornado? Where are the rapidly growing sales and profits?
I could blame the recession for this. But that's only part of the problem. The other problems are:
1. QCOM has a bad habit of big losses from Strategic Initiatives.
2. There is a disconnect between saying that 3G phones offer consumers a qualitatively better phone, a phone they are going to get "excited" about, and expecting ASPs on phones to decline. If falling prices were producing a much bigger market, causing overall sales to grow rapidly (like the way Intel manages their market), then I wouldn't worry about falling ASPs. But that's not happening. I'm forced to conclude that falling phone ASPs indicate consumers don't see much value-added, compared to 2G or 2.5G phones, and that's why QCOM doesn't expect consumers to be willing to pay any more for 3G phones.
PE = 48 = 45/ 0.94 pro forma EPS in FY 2002
I'm having a hard time justifying that PE, for a company with expected 0-10% sales growth, and no profit growth, in the foreseable (= next 12 months) future.
For 1 1/2 years now, I've been buying the dips in QCOM, and selling my higher-cost lots on rallies. When I see evidence that the macro, sector, or company fundamentals are worsening, I get more aggressive in selling. This has allowed me to keep my capital intact, and even generated a modest amount of ST profits, during that time.
I am quite discouraged by this quarter's report and CC. I had thought that wireless would be the one area within telecom that would hold up. Looks like I was too optimistic. I'm currently holding the shares I bought at 40 last year, and I'm debating whether to sell them on the next rally, and wait to buy back in increments, at 35, 30, and on down. I think I'll wait to see if the stock bounces here, at about 40, which is where we bounced in April, and again in October of 2001.
JS@longanddisappointed.com |
