Dear John (hope you haven’t gotten too many of these over the years). First off, happy Thanksgiving to you. I know I sure have a lot to be thankful for- family, friends, to be born & living in the U.S. of A., and to have had the great fortune of discovering the Qualcomm SI threads and to have been able to read the words of wisdom of those who have unselfishly posted these many years.
Secondly, thanks for the wonderful compliment- “Good thing we have someone as wise as you on the board.”, as it really means a lot coming from one of such brilliance as you. I have never been referred to as “wise” before, maybe “wise axx”, but NEVER “wise”.
In my prior post I figured I was wasting my time and apparently so, if all you gathered from such was as you said- “So three pages of lecture that could be more succinctly summarized as "the business is growing" is true,”
Gveau., cfoe, engineer, and clark have pretty much stolen my thunder in their responses, but its Thanksgiving so I thought I’d give it another go.
As you recently replied to another, “a very telling response”. May I suggest that your’s fits that billing also as they reveal to me a very superficial understanding of Qualcomm. Perhaps someday you will tell us if you have ever listened to just one of their many “analyst” conference calls or webcasts over the years.
You wrote-
1. “And maybe by then the 25 year old company has matured enough to a blue chip company and command a traditional PE for a healthy and growing big company of about 17 or so.”<<<
You appear to continue to base you projections on happenings 15 to 30 years out and you’re right in that who can accurately forecast that far into the future. Qualcomm, I believe, is at the beginning of a new technology adoption life cycle (TALC) and its growth will be extraordinary in the next 5 to 10 years. I’m not speaking of a “mature” company with “a traditional PE for a healthy and growing big company of about 17 or so.” Value Line shows the DJIA companies for the last 10 years with a PE of 17.4 and earnings growth rate of 9.7% which yields a PEG of 1.8. In my models I’ve been using a growth rate of varying between 25 & 35% (probably understated) which yields a PE of 45 to 63 in a normal market environment.
2. a. “If current results are based on 15 million handset sales per six months” <<<
b. “In other words, my "gloomy" assumption has to be that CDMA will be the dominant wireless technology on the planet for the next 35 years.<<<
In my “three pages of lecture” (actually it printed out to two pages of “lecture” and 3 pages of a Dr. I. J. BW interview, with my printer), you apparently failed to grasp much if anything I tried to explain.
a. “15 million handset sales per six months” is an example. The 15 million figure refers to CDMA subscriber adds, and again, is becoming a less valuable metric in measuring Qualcomm’s performance as handset replacements/ upgrades now account for upwards of 60% of handset sales. Therefore, CDMA handset sales per six months (2002) should average 42.5M and not 15M as you stated.
b. I attempted to point out that Qualcomm is NO LONGER DEPENDENT on the rapid development and commercial deployment of WCDMA. With the recently announced MSM6300 (GSM/GPRS- CDMA2000 1X- “world phone”) chipset, Qualcomm in a few short months will be able to sell to virtually every carrier (GSM/ CDMA) in the world. Not too many have realized the significance of this event yet. The “world phone” will allow Vodafone, China Unicom, and other GSM carriers the ability to sell ONE PHONE that can virtually roam the world. Again, this is Dr I.J speaking to this subject in his BW interview. Perhaps you should read for comprehension this time.
>>>A: There are carriers such as Vodafone (VOD ), which operates a system based on two different wireless technologies around the world. And Verizon Wireless is operating on CDMA here in the U.S. There's desire from both carriers to roam in both the U.S. and Europe. Our chips will support that.
Then there are wireless carriers, like China Unicom (CHU ), that operate equipment based on CDMA and on another technology. Such carriers will want phones that operate on both parts of their network -- since that could lead to less expensive phones. Initially, these will be higher-end phones used by business travelers. But as we crank up the output of chips that have this capability, the cost difference between a regular cell phone and one that can roam globally will rapidly become quite small. So, as we look out, perhaps, a couple of years, I think most phones, except entry level ones, will have these capabilities [to roam globally]. <<<<
To sum up, I did a quick “back of the envelope” calculation this AM of the number of CDMA subs by 2007 to see what the compounded subscriber growth rate would be to reach that number. I used 2 billion as the number of world wide subscribers by 2007 (Forester and others say 2 billion by 2006). My assumptions are as follows-
1. CDMA2000 share of additions at 25%
2. GSM conversion to WCDMA at 25%
3. U.S. TDMA/GSM (at&t, cingular, etc) crossovers to CDMA2000 at 40%
4. S. Amer TDMA conversions to CDMA2000 at 60%
5. GSM (VOD, Unicom) conversions to GSM1x at 25%
Applying these assumptions yields a CDMA (WCDMA/ GSM1x) subscriber total of 1.078B by 2007. A compounded annual growth rate of 50% is required over the next 5 years to achieve that total. In the year 2007, a total of 357 CDMA subscribers are added. This is JUST subscriber adds, and does NOT include replacement/ upgrade handset sales. Applying a 33% factor (replace every three years, CDMA replacements/ upgrades are currently over 50%) to the prior year estimated subs yields a total of 636 replacement handset sales. Of the 636 million, estimating the WCDMA share at 30%, CDMA2000 at 30%, and Dual mode (MSM6300) at 20%, yields an 80% CDMA share of the replacement market or another 509 million handset sales. CDMA handset replacement/ upgrade sales for 2002 are estimated at about 50 million. John, I’ll let you figure the annual compounded growth rate required to go from 50 million to 500 million in five years. So, in 2007 it may be possible to see CDMA (all variants) handset sales of 800 to 900 million from 85 million today. And, that’s just from handsets, not including PDAs, laptops, and the other revenue sources touched on in my prior post.
One final word, instead of fixating on GAAP, pro forma, the past, etc., why not remove the mental block and look toward the future as it just might brighten your outlook on life.
Happy Thanksgiving-
Gotta carve the turkey now. Jim |
