Mike, great series of posts on QCOM. I get the feeling you have only scratched the surface. If only the weeks were 8 days long, and the day job was 4 days...:-)
I too have watched the Q for several years. I did buy and sell it twice for profit, but had to endure a couple of bouncy rides through disappointing earnings announcements and, honestly, got worn out with trying to sort out who was winning in the alphabet soup of standards, the legal wrangling over patents, and the nationalistic pride PR blitz factor that was ever present among the US, Finland, and Sweden based manufacturers.
The effort to sort out QCOM's income statement is formidable, and I wish you well on your search. Over the last few years, they were doing deeply discounted infrastructure sales contracts, (and providing long-term financing for same), in order to get their CDMA standard out there. Big sales growth, low profits. They also had phone manufacturing in their own shops, plus the joint venture with Sony that you referred to. Also big sales growth. They have substantial ASICs sales and a services/consulting business unit that works on CDMA system installs around the world. And of course, that sweet and growing royalties stream on the CDMA handsets sold by the other manufacturers.
I think Gilder's assessment is short, to the point, and may be in the right direction: QCOM can be "the Intel of wireless communications".
To me, that standard setter position would include those 100% margin royalties, and manufacturing (subcontracting?) ASICs and other chips/chipsets. Probably includes a substantial business in services/consulting to those licensees doing the system buildouts and handset sales around the world.
The past quarterly reports show QCOM has not been very profitable as a manufacturer of handsets or infrastructure. Meanwhile Nokia, Motorola, and Ericcson are all well established in the world wireless infrastructure and handset markets. I think selling phone manufacturing to Ericcson in exchange for a royalty stream was a wonderful move for QCOM.
If QCOM can concentrate on CDMA enabling hardware in volume, stay away from the phone manufacturing business, and can keep the others from end running their patents, and can keep the CDMA standard growing worldwide, maybe Gilder's Gorilla-like assessment is right on.
I remember a bear posting back in 1996 or 1997, when the debate on CDMA vs all the other standards was in high gear, something to this effect:
"When QCOM does make a profit, they go out and hire more PhD's and it all goes back into more R&D".
This has a ring of truth, from my limited experience. So our analysis of QCOM as a standard setting, cash gushing royalty machine has got to include an assessment of the business acumen of the top management, in addition to the strength of their patents and their technical/engineering wizardry.
QCOM Report Card:
I will be the first to admit I can't handicap the patent strength issue. Help!
Technical wizardry looks like an A+.
Businesss acumen I rate an incomplete.
That's enough of my sprinkling cold water on a hot situation. I am excited for QCOM management, and the capitulation of Ericcson is momentous.
I look forward with interest to your next posting and assessment of their prospects. I have no objection to buying in for a third ride, and maybe this one can be the most rewarding of all.
Best regards,
Brian
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