LOL... you still don't get it, do you.
I UNDERSTAND what you are saying. You don't seem to get it that while I understand what you are saying I question the VALIDITY. I hear you, but I don't agree. There's a difference. Assuming lack of comprehension as the only basis for disagreement is the mark of an overly bloated ego.
And merely parroting back a position with an extra coating of spittle is a juvenile response to rebuttal.
Let's take a few of your assumptions as facts. Like 1.08 billion CDMA subscribers in 2007. And like this arrives through a 50% CAGR from here. And imagine for a moment we are in 2007. What might we see?
Looking back a year we get about 720 million CDMA subscribers in 2006. So handset volume (which drives Qualcomm's revenue) would have been at least 360 million units. Add in churn (replacement) from a third of the subscriber base at about 240 additional units and you get about 600 million handsets sold in 2006. It's this number that drives the business, not the total number of CDMA subscribers. So far, I suspect you will agree with this basis.
Assume this all comes true (whether I agree with that as a wise assumption or not is another question, we can take that up later). Then no question these are bigger numbers in terms of revenue than we had back in 2002. No question the company has grown earnings mightily. But as investors we are interested in future revenue growth, and we realize that suckers back in 2000 may have paid too much for the stock, just like suckers back in 1996 sold it for too little. With a world full of suckers paying too high and selling too low in our past, the best we can do is look forwards to estimate what will come in order to determine what price we will pay.
You suggest that the company should be valued in 2007 at an EPS of about $4 per share and a long term forward CAGR of 35%.
Let's just apply a reality check to your 35% CAGR growth hypothesis. You've explained ad nauseum that profit correlates to handset sales volume, not just handsets in place. So that means our 35% CAGR growth must also translate to handset sales volume.
Not quite volume, but volume at price. Royalties from a handset with ASP of $29.95 would be about a third of that from one selling for $100. So as commoditization takes the price down we need more handsets. Let's dismiss this complexity and assess the business based on a volume of "handset equivalents". Things that folks are willing to pay upwards of a hundred bucks a pop for.
So here are the necessary volumes of "handset equivalents".
Year CDMA Handset Equivalents assuming CAGR of
35% from 600 in 2006
2007: 810
2008: 1093
2009: 1476
2010: 1992
2011: 2690
2012: 3632
It should be clear to any investor with two neurons to rub together that this is an unsustainable volume production at the kind of ASP we see today, given the population of the planet and income distributions and so on.
Sure, maybe wireless utensils *might* someday outsell toothbrushes. But at a price that makes the ratio of handsets to handset equivalents a factor of two or more. One per person on the planet. Per year.
If this was all happening in the environment circa 2002 with a rock solid hold on IP due to a handful of enforceable patents and 3G (=CDMA) the most viable wireless bit transport protocol... well, then we might think the risk is fairly low.
However, this is happening in 2007. Five years after 2002. The Internet went from no where to a universal presence over an equivalent span of time. And despite all criticism to the contrary WiFi is gaining traction. It's not supposed to work. It's not supposed to take off. It just is. Shades of the Internet all over again. There is a true revolution happening in wireless. And it is indeed all about untethered bandwidth. But it's about gigabits per second per cubic mile. And when one does the math one is forced to small radius cell-sites and much faster data speeds. And integration to the data network. Not an overlay on top of voice networks. In other words, the 802.xx suite of protocols. OFDM, not CDMA.
There are those who suggest Qualcomm's CDMA will find itself into laptops and PDAs and NIC cards. Possibly. But as a complementary technology to WiFi. Like AMPS is still a complementary technology to TDMA and CDMA. Something to use when you can't get the real thing. Qualcomm is the only game in town when it comes to deploying CDMA, and CDMA is the only game in town when it comes to getting reasonable data rates from a wireless phone. Today. And thus they have pricing power. Today.
But keeping this pricing power when relegated to the warm up act is a more difficult chore. So Tomorrow? in 2007? I think the landscape will be not so unevenly tilted towards Qualcomm's revenue or profitability.
All of this is not reason to dismiss Qualcomm from the fray. However, it is a good reason to use a heavy risk discount factor when assuming a future outcome that based on a rather simplistic status quo multiplied by increased volume. And you do not appear to be discounting these risks at all. Ref. Mucho's very astute post.
My concern with your position is NOT that the conclusion doesn't flow from the premise. It's that the premise is flawed and makes no allowance for risk. Which has a habit of reaching up and punching folks in the portfolio.
Merely repeating the same premise-to-conclusion doesn't make it any more believable the n'th time than it was the first time.
If you were serious about educating anyone on the thread, then perhaps you would complete the following table:
Year Global Handsets CDMA QCOM
Subs Sales ASP Subs Sales ASP Revenue Profit FCF Shares
2002
2003
.
.
2011
2012
Which might be a starting point for rational discussion. And around which we could test various assumptions and the potential outcomes.
As opposed to wading through the irrational elements you insist on throwing back into the fray.
It's money, not love. No place for emotion Jim.
John |
