Mike,
re: 32 years trailing FCF. My confidence in QCOM's ability to double or more this FCF comes from the fact of CDMA's increasing market penetration into an already growing wireless market.
Last figures I've seen (and others have much more knowledge on this) is that CDMA was approximately 17% of the market. Not only do I see this market percentage going up to 30-40% of the total market, but someday perhaps 60, 70, 80% or more of the market, if 3G technologies become the norm everywhere. Since QCOM is CDMA, the growth potential places the valuation into good context as QCOM does not need to grow an untested market but rather just has to see the "natural" progression into a 3G centric wireless world for it to gain marketshare.
In addition to this, EV-DO seems to be doing better than expected, or at least if Sprint goes that way. Read an analyst article yesterday predicting that Sprint would shortly announce its high-speed wireless plans, to be rolled out over the next 2 years, and the choice would be equivalent to Verizon's selection of EV-DO. Verizon has indeed pushed the marketplace forward, and Cingular will follow-suit on their W-CDMA path. America is becoming QCOM.
China? Always enigmatic, but it is a market that has hardly started CDMA and yet we know it is going to some form of CDMA. To the surprise of the carmakers, the average car purchased in China is more expensive than the average car purchased in the U.S. The Chinese consumer likes its luxuries. Will this translate to cellphones? If so, China will not only offer volume but high-end sales to boot.
With so much growth potential that is not largely dependent upon having to grow a new market but rather the "natural" evolution of the market, one can easily see that 32x FCF trailing fall to 16 and 8 and so on over the coming decade were QCOM's stock price to remain stagnant.
I'm somewhat optmistic in that regard I would have to confess.
Tinker |
