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Strategies & Market Trends : Gorilla and King Portfolio candidates - Moderated

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To: Mike Buckley who wrote (200)	10/31/2003 1:30:00 PM
From: Jim Mullens	Read Replies (1) of 2955

Mike, re: (QCOM cash + marketable sec) and “Check your numbers. The latest 10Q shows an increase that is nearly $260 million less than that.” Qualcomm's latest earning report (June qtr)- balance sheet and a recent briefing chart reflects $5B. Some more interesting numbers in addition to Free Cash Flow- ............................FCF.............Net Income- Ops......Cash + Mkt Sec Inc FY 00..................$648.9M FY01.....................577.3M FY02.....................826.1M FY03 9 months....1,068M.........$ 925M...............$1.800M FY03 12Mos est $1,451M.......$1,159M...............$2,400M More questions when you have the time and if you don’t mind- 1. Qualcomm is trading at 26 times FCF ($38B mkt cap/ $1.451B FCF annualized). Do you know how this compares with the overall market ? 2. Re: your prior answer’ “The enterprise value is the equivalent of about 30 years of trailing free cash flow. If free cash flow annually increases 50% for the next three years and the enterprise value remains unchanged, only then will the value be the equivalent of about 10 years of free cash flow. “ You appear to be saying that you are valuing QCOM based on 10 years of FCF- the 7 prior years and 3 future years with FCF increasing 50% each year. Is that not placing most of the valuation emphasis on the past, and not on the future? 3. Are you in effect saying that per your methodology that Qualcomm would be presently fairly valued only if it generates $4.9B in FCF in 2006? More interesting comparisons (Cash + Mkt Sec inc at 80% of FCF ) 50% inc/yr-......FCF ....Ops Earnings..... EPS.........Cash + Mkt Sec 2003 est....$1.451B..........$1.159B.........$1.42.......................$5.6B 2004............2.177..............1.739.............................$1.7B.......7.3B 2005............3.265..............2.607................................2.6.........9.9B 2006............4.898B...........3.911B...........$4.78..........3.9.......13.8B At 2006 YE, with an EPS of $4.78 and maintaining its current price of $47/sh and $38B market cap, QCOM would have a PE of less than 10 for a company with FCF and earnings growing at 50% per year and 36% of it's Market cap in Cash and Marketable Securities . Does this seem reasonable? Help, What am I missing? TIA- Jim

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