Slacker, re: Growth - WCDMA / QCOM, >> the best is / is not yet to come.
Ok, I believe we have established-
1. WCDMA subs & handset sales are still in a robust growth phase
2. “the best is **not** yet to come” WRT QCOM’s future revenue / EPS rate of growth rate
3. The “best is yet to come” WRT QCOM’s—
......a) revenue and EPS is still growing, but at a slower rate
….b) $/sh exceeding $100/ share is still a possibility
Your concerns / Issues impacting QCOM’s growth-
1 Stating ----- “if you use those ASP numbers ( $129.50) for the year, you get a handset market that is worth roughly $155 billion. Now throw in another 100 million non handset wireless devices selling for an average of $150 per device. This way overestimates the size of the non-handset market. So what is Q's royalty market share using these numbers? It is 66.5%. Think about that...Q collects a royalty on over 2/3's of all wireless device revenue. There just isnt that much left.
Now for the worst news....total handset revenues are DECLINING. Some of this is due to the recession, but the trend is clear. Growth has been slowing for years and we would need a real inflection point to even get back to 10%. The huge increase in smartphone sales hasnt been enough. “
>>>>>>>>>>>>>>>>
You appear to be making the point that QCOM’s TAM (total addressable market) / world wide handset sales revenue (QCOM’s royalty base) is stagnating, or worse, declining. And, QCOM’s “royalty market share” at ~ 2/3 of all wireless device revenue” doesn’t leave much room for growth.
a) The lower priced handsets (GSM) represented over 60% of sales in 2008, having a pronounced impact on the overall industries ASP of ~$129
b) WCDMA sales represented ~20% for 2008, with much higher ASPs (~$260 per Merrill). Also, smart phones with much higher ASP represented a small percentage of device sales in 2008.
c) IMO, overall ASPs will increase as GSM subs convert to higher priced WCDMA / smart phones and those sales accelerate over the next several years. China will be a major driver in this arena as will all carriers realizing the revenue benefits from data services and the spectrum efficiencies enabled by 3G technology. Another factor to be considered is the added functionality (bells / whistles) within 3G phones, vs the GSM entry level devices.
Stable ASPs can clearly be seen when looking a QCOM’s base handset ASPs over the years. Each year a significant ASP decline is guided, only to be revised upwards during the year. I’m not predicting that world wide ASP will continually remain above the $200 mark, but I find it hard to believe they will quickly decline to the $129 level or anything close to that.
….F05 $215
….F06 $215
….F07 $214
….F08 $218
d) Thus, as 3G / smart phone (with higher ASP) volumes ramp, total world wide ASPs will increase along with QCOMs TAM and royalty revenue.
2. Stating >>>>“Q's story will no longer be about grabbing share within the wireless market but grabbing more and more of the revenue associated with each device. That is a much more difficult challenge and it is an open question whether they will be able to pull it off.”
You appear to be making the point that QCOM will be challenged to gain chipset share within the total wireless market.
With 320 million MSM chipsets sold in CY08, QCOM’s baseband share of the world wide device (handset) market of 1.2 billion units was fairly small at ~25%, leaving considerable room for share expansion (IMO). The share of the pure phone device is even smaller as I believe it was stated that about 40 million MSMs supported non-phone devices (notebooks, etc).
Thus, chipset share expansion potential is further enforced by several factors-
1. The fact that QCOM-
…………+ does not support the largest share of the handset market (GSM @ ~60%),
…………+ GSM units are ever increasingly being replaced by 3G/ WCDMA devices that QCOM does support,
…………+ firmly suggesting that QCOM has a grand opportunity for share gains in the 60% where it is currently not represented.
2. The fact that the baseband supplier community is consolidating, with at least two of the largest suppliers (Texas Instruments & Freescale) exiting the baseband market. Merrill wrote in 2008- “We see several potentially significant opportunities over the next one to two years for QCOM to increase its share in the WCDMA” . Further, Credit Suisse estimates that NOK accounted for about $1.8 bill of TIs $3.4 bill in wireless revenues, writing ---“Even assuming QCOM gains 50% of NOK’s wireless business from TI gradually, which we believe could be conservative, this could mean as much as a further $900 mn revenue opportunity in the long run….”
How much share of the WCDMA chipset market can QCOM gain from TI and Freescale? The potential is significant with over 50% up for grabs per Merrill’s WCDMA handset IC revenue share estimates for 2006.
…………………MER ’06……..QCOM 2012?
…+ TI…………..40.6%
…+ Freescale…13.2%
……..s/tot………53.8%...........26.8 @ 50%
…+ QCOM…....24.4%...........24.4
…….s/tot…….....78.2%...........51.2%
3. Two of the major handset mfgs (NOK / MOT) , currently not using QCOM MSMs in their WCDMA devices have announced intention to employ QCOM chipsets their newer WCDMA models. Coupled with the above, provides further support for substantial chipset share gains.
………………….Total Handset Share- 2008
….+ NOK………~39%
….+ MOT………~09%
……..s/tot……….~48%
4. Not of minor importance, it should be noted that QCOM is the recognized pioneer in commercializing CDMA based technologies and as such has consistently been on the leading edge in advancing the development and manufacture of such chipsets with the most extensive wireless chipset roadmap in the world.
Summing it up, the above suggest that the total mobile wireless handset market has a good chance of significantly expanding revenues, and with it QCOM’s likely potential to gain significant market share in same.
Further, in addition to the basic handset market, QCOM has many other incremental revenue streams offering significant potential--- snapdragon / Gobi (MIDs, Netbooks, Notebooks, PND, mobile TV, health monitoring, etc, etc), MediaFlo, Iridigm displays, etc, etc.
What does it take to get to ~ $100 / share (about a 15% CAGR for 5 years). And, how can a 15% CAGR be achieved-
a). Revenue growth
b) Margin improvement via
………. OPEX efficiencies (headcount stabilization / reduction via attrition, etc, etc
……….Scale efficiencies
c) Share buy-back via cash flow
1- 2010 …..$55
2- 2011…….63
3- 2012……72
4- 2013……84
5- 2014……96
Hopefully the general economy / markets will cooperate. |
