<<The basis of valuation has less to do about "GAAP" versus "Operating number" than it does with economic profit. Which is the sum of discounted free cash flows. And I presume that you will agree with me that a company does not make me any wealthier by taking money I used to have and giving it back to me.>>
Wouldn't this be relevant if I'd forked over the paid in capital and was looking to see what I had in exchange after all these years? Is it really relevant to a decision to buy or sell stock in a publicly traded entity at any given point in time, and especially since the reason the company looks so unimpressive according to your criteria (i.e. QSI writedowns) will continue to diminish in its relevance to the future earnings, and hence the value of the projected discounted cash flow, of the company?
<<And finally, if the company liquidates assets in the process of operations and then invests these liquid assets in the process of financing, then I don't even get to enjoy the benefits of liquidity. Particularly if the re-frozen assets end up subsequently being tallied as "strategic". [And written down to zero!]
Movement of wealth and liquidation of assets are not generally a wealth-enhancing thing.>>
Ditto.
<< So when I perform a valuation exercise, I am very careful to watch the rate at which real wealth is being increased.>>
By this I think you really mean has been increased, as oppossed to what one can realistically anticipate the rate of increase to be in the future for a pure royalty and operating, and no longer strategically investing, Qualcomm.
<<What fraction of Qualcomm's current assets are classified as "strategic", and if these do indeed represent legitimate marketing expenditures and we can expect them to go to zero, there is a lot more waiting to disappear off of income in the future than was written off this last quarter.>>
I don't think its right to assume that just because something is listed as "strategic" means that it will inevitably diminish in value. I believe the Vesper thing was the last big shoe to drop, wasn't it? We've written down Leap and Globalstar. We've extricated ourselves fairly well from the Pegaso deal. Now that we've also wriiten down Vesper,are we really still carrying sizeable overvalued investments in faltering companies? I don't know for a fact that we aren't. Its just that if we are I don't know about it.
<<The issue is not whether the pie gets larger, but the size of Qualcomm's slice of the pie. The number of chip suppliers does not increase number of wireless consumers. And unless I misread the thread, the thesis behind a high valuation is that CDMA of one form or another will be in every device. So what we are seeing is validation of this premise without increasing the size of the market>>
I don't know of any QCOM investor who ever expected QCOM to be the world's sole CDMA chip provider if CDMA became the world's dominant standard. In fact, in was in express recognition that it would be in QCOM's interests to have a whole host of companies manufacturing CDMA gear that led QCOM to contract for so many licenses to begin with. The announcements over the past month will only accelerate the world's conversion to CDMA.
Also, is the majority of expert opinion really that the overall market for wireless will not grow over the coming years? I don't think it is. I'll try to link some credible estimates in a subsequent post.
<<I suggest you review the rate at which shareholder equity net of paid in capital is increasing. You might be surprised.>>
Yes, but shareholder equity net of paid in capital, like GAAP, gives no consideration to the unrealized increase in the true value, the economic value if you prefer, in the patent portfolio. And like GAAP, shareholder equity net of paid in capital has been flat mainly because of the discontinuing need to make seed investments for CDMA. And therefore, like GAAP, future levels of shareholder equity net of paid in capital will not be similarly diminished as are current levels.
<<when we look at the absolute rate of increase of distributable shareholder wealth... it is not increasing at a rate that would justify paying $25 for the rights to own it all.>>
Ditto. The past rate of increase in distributable wealth therefore is not indicative of future rates of increase. For example, what would have been the quarterly increase to distributable shareholder wealth had there been no Vesperdud type writedown, as will be the case in the near future.
<<If my son is the market leader in the growing summer lemonade stand market, that doesn't necessarily mean he's worth a lot. Particularly if it's costing him as much as he's making to maintain his market leading position.>>
Wireless technology is an industry in which technological competencies matter much more than the lemonade business.It has cost QCOM a sizeable chunk of what they've been making not to maintain their lead in CDMA science, but to foster the acceptance of CDMA.QCOM can differentiate the relative quality of its offerings based on knowledge to a much greater degree than can a lemonade stand operator.
Thank you for your detailed response. I will genuinely appreciate any additional feedback you or others have time to give. I can assure you that I approach this discussion with opinions but also an open mind. I wish only to refine my own understanding of what is really going on with this remarkable and fascinating, and uncertain, investment.Even to the point of selling some or all of my holding if thats the best thing to do.
Best regards. |
