Good questions Mike.
Only one area it has done very poorly. That is its net margin, only
3.4%. Comparing with other traditional growth companies, MSFT, INTC,
CSCO, DELL, and VTSS. QCOM is nowhere near its peers. This also
reflects its management efficiency. Only $10,000 net income per
employee.
The analysts have harped on margins for awhile now. I think management has been concentrating on establishing a world standard and building expertise in CDMA and a number of other pioneering technologies that will prove immensely profitable over time.
Ericsson claimed in a recent press release that they are the "knowledge" company but the Q's achievements convince me that they are more deserving of that title. IMHO Qualcomm is gradually transcending their reliance on manufacturing profits in favor of royalties. Royalties come in many flavors. IMHO Qualcomms ASIC division profits are essentially "royalties" since the chip-making is contracted out. MSFT's primary profits derive from a parallel situation with a major difference. MSFT didn't need to invent and manufacture the PC in order to demonstrate the worth of their products (IBM and others did that).
In Qualcomm's case, TDMA technologies were already entrenched by the time CDMA was ready for market. Qualcomm was forced to create working systems in marketable quantities in order to successfully challenge TDMA/GSM. I am of the belief QCOM should divest themselves of the handset business (Nokia, ERICY, ?) (after demonstrating the excellence of the thin-phone this summer) and concentrate on developing and selling the worlds best mobile ASICS (contract manufactured). This will allow Qualcomm to maintain a relatively small work-force while simultaneously watching sales, profits and demand for/of ASICS increase exponentially as new applications (smart vending, wireless auto's, PdQ's, wireless wallets, etc., etc.,) find demand.
IMHO, margins are low because the Q is still relying upon manufacturing for profits and to hasten the displacement of entrenched TDMA based technologies. In other words, the Q hasn't even rounded first base yet. And look at that ball fly, fly, fly away!
Bux |
