John:
...so then the cost to shareholders of Qualcomm stock options is much reduced if we use current market price rather than estimated asset value?
I kept out of the most recent debate here on this subject, since I said my piece back in January. I understand your argument, but I don't care what cost John Shannon attaches to employee option grants. What's relevant is how Qualcomm is required to account for them, either at the time of grant, or at the time of exercise. If the rules get changed, the impact on EPS at the time of grant will likely be similar to what is currently buried in the 10K, and I know what that number is. It will be out in the open that's all. If things go further to require companies to expense the "Shannon cost" or something like it at the time of exercise, so be it, and I know what that impact is as well. All worth keeping a close eye on , since a lot of companies will see their stocks take a hit if these kinds of reforms come to pass, and Qualcomm won't be the worst hit by any means. And if the business grows as I believe it will, the relative impact on earnings will be small.
...We clearly disagree on the prospects for the business by 2006. Maybe we pick up that thread in another 4 years...
Fair enough. I did say it was one possible scenario, and it comes from the upper (optimistic) end of my model for how the business scales with volume, which rests on a whole bunch of assumptions, including subscriber growth, chipset market share, overall CDMA penetration into handsets, ASP's etc. etc. It doesn't include the complete bypassing of all 3G by WiFi, OFDM, and other things that robv posts about with such obvious relish, though those things are worth keeping an eye on as well. Maybe I'll post something from the "middle" of my model which is probably more realistic, but still impressive.
...Meanwhile, as you throw around numbers in the billions of consumers, you might want to check out some income statistics...
Not just "throwing" numbers around, and I have looked at a ton of income statistics. Not that many years ago, people were ridiculing the notion that the mass Chinese population would be able to afford wireless phone service, and here they are leading the world in subs at 160 million or so (about 12% penetration), though not in revenues. But all things are relative, and they are making a profit on all those subs, even the low end ARPU pre-paid ones.
From this source:
asiandemographics.com
Here's some interesting data:
India China
Household Income ($US) % of Population
15,000+ 5.7 )
10,000-15,000 3.0 )8.0
5,000-10,000 8.6 )
1,000-5,000 38.9 67.0
0-1,000 43.8 25.0
Population (millions) 1,000 1,300
Wireless subs (millions) 5 160
The data I looked at for China didn't break out the upper income levels, so the 8% number is those households with $5,000 or greater income. Those 8% represent about 104 million, so even assuming everyone in that income category has a wireless phone, the Chinese have still succeeded in pushing cell phone use down into the $1,000 to $5,000 income group (which represents around 2/3 of the population or 870 million people) to the tune of 55 million or so, about 6% penetration. While it seems unlikely that they'll reach the lower levels of this group, there's still plenty of room to increase the number of people served, which is probably by the MII is projecting adding 50-60 million for the next 5 years or so, which would bring wireless service to about 40% of this "middle" group. Plus presumably they intend to raise the general standard of living, which would only help.
In contrast, In India there is actually a greater % of the population in the upper income brackets than in China - 8.7% with over $10,000, 17.3% with over $5,000 in income, and a further 38.9% in the $1,000 to $5,000 bracket. Similar penetration to current China would raise the wireless subs in India to around 200 million, and if India reached the China 5 year goal of 40% penetration of that big "middle" group, India would have 330 million or so wireless subs.
India is just one example, wireless is similarly under developed in other highly populated regions, and presents the lowest cost way to bring communications to the masses.
Low ARPU's/MOU's? Sure, but the Chinese are doing it at a profit, so no reason why India can't as well - once the politics are pushed aside and they get on with it. No wonder Qualcomm sees great prospects in India, where GSM has only a tiny toe hold.
Low handsets ASP's and so lower CDMA royalties? Sure, but offset by the higher ASP's for the more developed countries and by the fact that Qualcomm has developed CDMA chipsets specifically for these markets, which they will quite likely own close to 100% of, since they are so far ahead.
So while you can through around income statistics and downplay the potential for wireless development in these under developed regions, as usual the true potential is buried in the details.
...As for $10/sh EPS? Bet your bottom dollar I'll be a shareholder before it gets there...
I don't think so John. If the market manages to regain its "forward looking" balance, I think that Qualcomm will always be a bit too rich for your taste (<g>).
David T. |
