Huey, it's always fun to explain easily explained things when people opposing a company are squawking about why it's no good. It leaves me quite relaxed about my investment. If the worst that people can find merely means they don't understand what's going on, then it's quite a comfort.
It's when people find things which I hadn't thought of and which really worry me that I get nervous about my investment.
You are basically moaning that other capitalists are putting too high a price on QCOM future earnings. That just means you aren't the high bidder. Which means you don't get to own the company.
You should go and buy one of those companies which pay back all of their paid in capital in earnings within three to four years of the initial investment. Or, if you are sure you are right, you could short QCOM and wait for the crazy capitalists who are backing it to learn about economic reality. I recommend you short QCOM because you will make a lot of money if you are right. Don't delay, do it now. You have figured it out, so do it! Get rich at the expense of the ignorant current shareholders.
Incidentally, I'm not aware of companies these days in such a competitive capitalist context which are paying back all the paid in capital over 3 or 4 years. Do you have a list which I can check out? I suspect their share prices are over the moon.
<So you think it is reasonable to pay just one guy in the company, not to mention all the rest of the well paid employees, a billion dollars in salary to produce half a billion dollars in earnings? Because that is all that QCOM has managed to produce so far in its entire lifetime. You seriously think this is leaving enough for shareholders? I don’t. >
Some investments take time. 7 Minute Investors with attention deficit disorder find waiting extremely difficult. They don't like complex things. They have difficulty imagining things. They certainly have difficulty imagining future earnings potential over a 10 year or 20 year span. That's where the bidding for QCOM shares is taking place. We are bidding for the 2010 earnings right now. We are not bidding for the 1998 earnings and savings which are money in the bank and IP on the wall [QCOM puts their IP on plaques on the wall], though we are also bidding for that.
You seem to think you can buy QCOM for a price reflecting past earnings. No you can't you silly. You have to pay for future earnings.
Past earnings have involved a decade of development and difficult investments, some of which didn't work out at all well. For example, Globalstar, Vesper, NetZero, AirFiber, WirelessKnowledge, Pegaso, Leap Wireless, NextWave, Wingcast, and others. A LOT of money was poured down the drain in those enterprises.
Now, high margin revenue is gushing in, like Spindletop sln.fi.edu
What you need to guess [along with all of us] is the shape of these curves over the next decade: cdg.org
The total CDMA subscribers curve is going up in a straight line, but notice that the 3G cdma2000 curve is kind of curvy upwards.
You need to guess how well GSM1x will work, how quickly it will be adopted, how many multi-mode, multi-band, radioOne, gpsOne, BREW-enabled, cdma2000/GSM/W-CDMA cyberphones will be sold and how much QCOM will get for the ASICs, the royalties and the software.
There are many other aspects to the business too. You need to value those as well.
You obviously think a lot less money is going to come gushing in than the shareholders do. The capitalists are bidding.
QCOM right now is earning about $1 billion a year. Not proforma fake accounting earnings either. Actual real $$ coming in the door and falling to the bottom line. With a $30 billion market capitalisation, that is already better than I'm getting on my US$ deposits, but I expect interest rates will go back up towards 10% some time in the next 30 years, so I want a better return than $1 bn a year to justify holding $30 billion in market capitalisation.
I expect that the curvy upwards curve will lead to earnings nearer $10 a share than $1 a share by the time we get to 2010. With $10 billion a year earnings [only $2 per human, all of whom want to own cyberphones, and upgrade them every year or two, or $5 for 2 billion of the humans] a market capitalisation of $30 billion isn't all that bad if a 5% growth rate is used, which would mean a $44 bn market capitalisation in 2010.
$44bn for earnings in 2010 of $10bn isn't too bad. It's in the ballpark. Each capitalist guesses at the likelihood of income then and bids accordingly. Obviously, a lot of shareholders think $30 billion is about right for now.
Don't forget, if QCOM shares were valued at what you think they are worth, Irwin Jacobs shares would not be worth $1 billion. Say QCOM dropped to $5 a share [to match your other investment opportunities], then his shareholding worth would be more like $150 million, which isn't that great for having generated earnings per year of $1 billion for other shareholders.
You can be sure that if Irwin Jacobs hadn't done it, nobody would have done.
Mqurice |
