I've been watching from the sidelines for the last couple of days. There are a few themes that seem to be prominent here. The longs are beating the rally drum, saying this is a near term set back and the longer term prospects are brighter than ever. The shorts are licking their chops while at the same time boasting vindication at last. Very interesting reading.
I must say though, as an active trader, I see QCOM's stock performance in the near term (6-12 months) to be hardly promising. I know the longs keep saying that in a year or two, things will be great, stock price double or triple (one even said six-fold higher), but they've been saying that for the last 2 1/2 years during which the cumulative return on this stock has been zero, 0, zilch. That's right, you could have bought QCOM at 47 3/4 in August 1995, held it for 2 1/2 years, and not made a dime. You could have had your money parked in a money market fund for 2 1/2 years drawing a measly 2.3% and made more money than if you invested in QCOM.
Now we have QCOM coming out of the closet and cutting its throat in a number places. Not only has it lost a decent chunk of business due to the Asian crisis, QCOM's management has lost a good bit of credibility. Both of which are not easily regained. But it's not just Asia. QCOM's expensive, high-margin "Q" phone has experienced weaker than expected sales in the US, the CEO admitted margins are being pinched and going forward the order picture is murky at best. Hard to find a silver lining, but it appears the longs have found a way to ignore the announcement, vowing to stay the course, some even saying they bought more on Friday.
I strongly disagree with this approach. Hate to resort to cliche, but catching falling knives is tricky business. This is the first whisper of trouble to come from QCOM concerning Asia. Who's to say it's the last? And who knew of weak US phone sales after the picture painted in the conference call a mere three weeks ago? What else does management not know? How could this just "sneak" up on them? All was fine and dandy at the last quarter's conference call, right? And now they drop the anvil on everyone's heads.
This is the argument that chafes me - management has been honest and has reported this information promptly and accurately as they have done all along. I'm sorry. I just don't buy it. Management knew of impending trouble long before last Thursday, and I suspect, well before the last quarter's conference call; however, they saw the opportunity to ride the coattails of a stronger than expected quarterly report right into the much anticipated Qualcomm Super Bowl party. QCOM's sales and marketing team had been banking on this party for a long time, not to mention the millions of dollars sunk into the sales pitch. To have it ruined the week before by whispers of possible "sales weakness" and "order cancellations" would have indeed been a pie-in-the-face tragedy - a tragedy which QCOM's management team chose to circumvent by carefully avoiding the issues facing them. So, instead they kept their mouths shut, let the stock run up, and enjoyed the party.
Management did realize they would have to say something about the impending trouble at some point before the Annual meeting, lest they have a riot on their hands. And dare I say, they might still get that riot. So they came out a few days before the big meeting and spilled the beans. I don't think however, that QCOM's management surprised everyone. Anyone else notice QCOM's short interest went up nearly 40% in January alone? There were plenty of people who knew what the real score was. I believe management knew too - they just didnt tell anyone until now.
Back to the stock price issue. Most of the big boys on Wall Street have all but abandoned the stock, at least for now. Currently, there are so many clouds that I can't imagine how anyone could put new money into this situation. It just doesn't add up. The near term upside potential is negligible compared to the downside risk. One could argue the stock is at support, technically. This is true. The longs just need to pray it doesn't break 45. On the charts, this event would signal a serious long term breakdown.
So we have a management that has been elusive at best, blatantly deceptive at worst. We have a sales/order/margin situation which can best be described as "cloudy". And we have a stock price which has just lost any trace of upside momentum, not to mention its 30 month price performance landing the long term holder a gain of absolutely nothing. I dont know about you guys, but I can think of better places to invest my money.
So what is one to do? Go to the bank and buy a 6-12 month CD. You'll have more money at maturity. By then maybe, just maybe QCOM's picture will be a little brighter.
Regards to all,
Todd |
