Allen: Interesting points regarding QCOM's quest for the goal, and why they are not content to leave any piece of the value chain on thetable. But I'm still intrigued to hear your analysis regarding manufacturing costs and why they are likely to come down.
You began your purchase recommendation by saying that 15% margins are the norm in the telecommunications equipment business, and that QCOM should be able to achieve these as well. They are not achieving them now, which means that manufacturing costs will have to come down.
Why are they so high now? Is it the costs of getting started, inefficient manufacturing techniques, excess capacity, or something else?
What makes you believe that QCOM can get these costs in line, and how quickly (months, quarters, years) will it take for them to do this. This still seems to me the key to QCOM's inevitable profitability.
I agree with you that revenue growth will ultimately come, from a number of sources, including royalties, equipment, chipsets, and handsets. But revenue growth is only half the equation. When will this translate to earnings, and what will cause it to happen?
If I can get a handle on these questions, then I'm very comfortable with the stock, and like you, recommend purchase.
Regards,
Jason |
