100cfm, re: QCOM disappointments and
“Yes your numbers prove my point. Look at the difference between unit growth and earnings growth. Especially 06-07.”
There was a time when it was a given that Q's earnings would outperform it's revenue growth rate by a wide margin. Not now. But if we want to get back to PEs of between 30&40 which is where Q should trade at, we need earnings growth to be much closer to the unit growth rate. Afterall what's the good of selling more and more widgets if more and more isn't falling to the bottom line.?”
Fair question.
1. There is no doubt that the Q’s outstanding financial performance over the past two years benefited directly from WCDMA sales and their higher ASPs which have been averaging close to $215/ handset. However, in order to benefit long term from 3GSM’s (WCDMA) ascendancy as those 2 billion subs convert to 3GSM (WCDMA) one must be realistic and recognize that WCDMA ASPs must drastically decrease.
FWIW, my financial model reflects CDMA/WCDMA handset ASPs falling to $168 in 2009 while at the same time just **handset related** EPS growing annually between 25 -30% over that same time span.
2. And Yes, the Q’s expenses have significantly grown over the past several years to mainly fund robust R&D initiatives for both MSMs and new technologies, and to fund SG&A as 3GSM carriers deploy their new WCDMA/ HSDPA networks. What’s even more amazing is that as R&D expenses have compounded at about 30% for the past five years. EPS has still been able to compound at over 26% for the same period.
3. Re: ”... if we want to get back to PEs of between 30&40 which is where Q should trade at, we need earnings growth to be much closer to the unit growth rate.”
IMO, the Q has done a darn good job in doing both--- strategically planning for long term future growth and dominance in the wireless industry and robustly growing revenues / EPS.
Further, QCOM’s PE should be in the 30-40’s based upon it’s past / future growth potential and not currently realizing such is because of 1) general market multiple compression, and 2) the FearUncertainityDoubt (perception) that the Q’s business model will fail.
4. Some interesting info I just pulled together from the Q’s MSM Roadmap / Dr. Jha’s and others recent presentations.
Perhaps most interesting is that MSMs in development ** tripled (3 fold increase** in Cy05 /06 from earlier levels.
+ 29 MSMs in production / development
....12 now in production as of May 06
.... 2 more in production (QSC6010, 6800) with commercial devices to be available before 06YE
.
+ MSM products in development by sampling dates
....2002- 5
....2003- 3
....2004- 3
....2005- 9
....2006- 8
....2007- 1
.......note- 11 of the 17 in ’05- ’06 are non-Value platform MSMs
.
+ MSMs by platform
....Value-.............9
....Multimedia.....11
....Enhanced........5
....Convergence...3
.
+ MSMs by technology
....CDMA
.......12- 1x
.........3- EV-DO
.........2- EV-DORA
.........1- UMTS/EDGE/HSDPA/DORA
.......18- Total
....3GSM/ WCDMA/UMTS
........1- GSM/GPRS
........3- EDGE
........3- EDGE/ HSDPA
........1- HSUPA
......11- Total
Bottom line, the Q is **unique** in that it continues to work at strengthening its long term future / dominant position in wireless while at the same time –
+ Paying dividends- raising such 5 times in the past three years
+ Repurchasing shares when appropriate
+ Strong Balance Sheet ($10+ B cash / Growing Cash Flow (+ $3B /year)
+ Growing revenue and EPS- +25 % five year CAGR
+ Providing for the future- R&D + 30% five year CAGR
On the other hand, the Q’s competition appears to be going in the opposite direction, withdrawing from the CDMA2000 market place, reducing R&D expenditures, and using its resources to primarily buy back shares to enhance its EPS growth.
IMO the Q despite its phenomenal past success continues to be a unique long term investment opportunity although the market place currently fails to recognize such.
Handset Sales- units in millions
............................CY05.....CY06....CY07 ... %04-06..%05-06
CDMA..................166........189........212
WCDMA.................59........110........223
Total.....................225.........299.......434........+92%......+45%
.
EPS
..Your# (high?).....$1.17....$1.65....$2.00..... +71%.......+21%
..Avg...................................1.63... $1.82......+56%.......+12%
..Year ago est....................$1.44...$1.59
....”analyst” miss-Avg ...........13%......14%
....”analyst” miss-High...........15%......26%
Revenue- $ in billions
...Avg...................$5.67.....$7.49....$08.63....+52%...... +15%.
...Low..................................7.44.......07.76
...High.................................7.63.......10.00....+76%.......+31% |
