Qualcomm still hunting for bulls
By Peter D. Henig
Red Herring Online
February 4, 1999
If ever there was a stock caught in a brawl
between bears and bulls, it's got to be
Qualcomm (QCOM).
Despite monster revenue
growth throughout the
1990s, reaching $3.3
billion by the end of 1998,
investors have remained
unconvinced that the
company's moves into the
wireless infrastructure
market and the highly
competitive handset
business merit the hot
premiums granted to firms
like Nokia (NOK.A).
In an effort to lure bulls back to its corner,
Qualcomm CFO Tony Thornley pitched a
roomful of institutional investors at the
1999 NationsBanc Montgomery Securities
Conference on the company's vision for
"building the wireless future."
The bulls snorted.
GLOBAL ACCESS
Qualcomm, a pioneer in the development
of wireless CDMA technology, expects
that growth in the wireless industry will
remain hot for the foreseeable future,
particularly in international markets such
as Japan and Brazil.
Mr. Thornley said that CDMA subscribers
in Japan should jump from 400,000 in
1998 to 3 million in 1999, that there are
"tremendous growth opportunities in
Brazil and China," and that despite
proceeding cautiously in Eastern Europe, it
soon expects deployment of CDMA
technology in Russia.
Such rosy growth projections were only
enhanced by Mr. Thornley's other bullish
comments. He called Qualcomm's
Omnitracs System, a satellite-based
transportation monitoring system with over
80 percent market share and over 1 billion
transactions per year, "very profitable."
He assured the audience that Qualcomm's
affiliated businesses with Globalstar
(GSTRF), a low-earth-orbit (LEO)
satellite communications system that is
close to full launch, is very strong.
"That's the frustrating thing," said one
trader and Qualcomm investor attending
the Montgomery Tech conference. "If
business is so good, then why has the stock
stayed so flat?"
The stock has actually dipped below flat.
Despite revenues that appear to be
doubling every two years, current share
prices are actually trading below 1997
highs of almost $70.
FIFTH WHEEL
"Why is a company that's growing at 30
percent not getting any respect?" asks
another Montgomery conference attendee.
Good question, but Wall Street has no
shortage of answers. Analysts have
questioned whether Qualcomm's handset
business can compete with the likes of cell
phone giants Motorola (MOT) and Nokia,
even though short-term demand remains
strong throughout the industry.
Qualcomm watchers also question whether
the company's decision to enter the
communications equipment infrastructure
business was a wise one. The
infrastructure business, which is
capital-intensive, would need to generate
$800 million in sales to be profitable, says
new CEO Richard Sulpizio, although to
date it has yet to generate even half of that.
For these reasons, Qualcomm recently
announced a workforce reduction of 700
employees, and rumors have been churning
that the company may even be shopping
around to sell its infrastructure business.
NEW TOYS ON THE WAY
While Mr. Thornley admitted Qualcomm's
earnings per share still remain lower than
management would have hoped, the CFO
highlighted some of the company's new
products and services in an attempt to
draw the bulls out of a snoozing audience.
Mr. Thornley tried to generate excitement
by discussing Qualcomm's smart phone
that will integrate PalmPilot and CDMA
technology into one slim package, to be
unveiled in March 1999, and Digital
Cinema, an upcoming strategy to transmit
movies via satellite.
But with a forecasted 1999 price-to-sales
ratio trading at just slightly more than 1,
and a forward price-to-earnings ratio for
1999 of approximately 23 times estimated
earnings, Qualcomm's metrics remain near
the bottom of the list for its industry.
As a result, either investors are missing the
value opportunity of their lifetime, or the
doubts concerning future competition in
handsets and the drag on earnings by
Qualcomm's infrastructure business are
continuing to keep the bulls at bay.
Bulls are the speciality of Elmatador |
