Engineer:
Why presuppose short covering? QC is undervalued relative to the market and relative to its peer group. The Street is simply gaining, albeit slowly, confidence in the company's ability to execute.
Those of you at the investor conference this year heard from a management team that is now focused on execution rather than jump-starting a new digital standard. Rich Sulpizio's bottom-line focus may be culturally disruptive, and his style is hard-edged vis-a-vis Irwin's, but nobody should doubt his determination to drive greater profitability (and with it, improved shareholder value). Some pretty awesome operating leverage in QC's business will become obvious as infrastructure losses decline and handset margins improve.
Management commented repeatedly at the conference that royalties are expected to begin growing again. You all know that I believe QC has been extremely conservative with royalty recognition. Factor in the Won's year-over-year improvement and CDMA's accelerating world-wide expansion, and it's easy to get pretty excited about the incremental EPS deriving from this line-item alone. Beyond IS-95 royalties, I was delighted to hear Steve Altman's comments regarding a new licensing cycle. He specifically noted that Qualcomm has been approached by a number of companies for 3G related licenses. These new royalty-bearing agreements will also lead to additional license payments. For those with a triple digit IQ (Jason M. & Marc C. are you reading this??), Steve's comments represented yet another reaffirmation of QC's confidence in its 3G-related IPR. Another important subtlety was Steve's comments regarding "pass through" IPR with respect to ASICs. Qualcomm's general license agreements, along with its settlement with IDC, entitle QC customers to use all the related IPRs without fear of a (valid) patent infringement claim. This is a protection that QC's ASIC competition cannot provide. It's hard for me to understand how VLSI, or others, can convince a significant cohort of potential customers that their technology performs well enough, that their prices are low enough, that their service and support are reliable enough and that their IPR position is sound enough, to justify switching from Qualcomm. Talk about a franchise.
Thank you to all that have queried, and otherwise expressed concern, about my absence. To be perfectly frank, I believe that the much discussed and pending cessation of hostilities with Ericsson will prove to be a seminal event for Qualcomm. Over the last year or so, I have been pretty open about what I expect to happen. However, I cannot, and will not, engage in day-to-day speculation regarding the nature of negotiations or the specific terms of the agreement. The chess pieces have been on the table for some time now and the outcome should be relatively obvious to those who understand the game. That being said, as a fiduciary and a responsible investment professional, it simply does not make sense for me to engender rumors or speculation. My principal editorial observation would be to observe that my firm has not sold a single QC share.
Best regards to all,
Gregg |
