Chaz too,
I had completely forgotten about the well detailed history of the networking games documented in the book. Thanks for reminding me. Your memory is very, very close to the history explained by the authors.
For them, it was in 1993 that Cisco was crowned the gorilla of routers. It wasn't until 1994 that the intelligent hubs category lost out to the router category, propelling Cisco even farther ahead as an overall network gorilla. It was later, in 1996, that the remote access threat was deemed to be only a royalty play, leaving the entire networking turf to Cisco, the gorilla. It will be interesting to see how the Lucent/Cisco battle ends, but as the author of this post I'm deciding not to allow discussion of that ... for now. :)
Thread,
Allow me to be a little arrogant by mentioning that you owe me big-time for the research I'll explain below. :)
When did the tornados begin?
The history lesson I got from the book is that Cisco's tornado in routers began in June 1990. Having determined that, I only needed to determine the moment in time that Qualcomm's tornado began.
Easier said than done. Looking for increases in revenue, I came to the conclusion that Qualcomm's financial statements aren't broken out with sufficient detail to measure the start of a tornado in terms of revenue growth. So I went back to the adoption of CDMA as measured by increases in CDMA subscriber growth. In the process of doing that I discovered a mistake I made weeks ago in reporting a 32% quarterly rate of CDMA adoption. In reality, it's "only" a 25% quarterly increase. (Darn. That's the second mistake this week I've had to publicly admit to.)
Back to square one, I created the following table showing the subscriber data in a way that is meaningful for determining growth.
QUARTERLY INCREASE OF CDMA SUBSCRIBERS
Dec '97: 3,550,000
Mar '98: 1,425,000 Growth: negative
Jun '98: 2,905,000 Growth: 104%
Sep '98: 3,870,000 Growth: 33%
Dec '98: 7,000,000 Growth: 80%
Using those numbers, I've determined that we should use April 1, 1998, (the start of the quarter ending in June) as the start of the tornado in Qualcomm's CDMA gorilla game. Remembering that it is the acceleration of growth that is as critical to determining a tornado as the growth rate itself, the above table tells us that the tornado could not have begun prior to the quarter ending in June.
To recap, we've got Cisco's start of their tornado -- June 1990 -- and we've got the start of Qualcomm's tornado -- April, 1998. (Disagreement about that is welcome.)
Cisco's Stock Price History
Cisco's price was $5/16 on June 1, 1990. Five years later it was more than 31 times greater, at $9 13/16. That's a 99% average annual increase.
Today, Cisco's price is $117 3/8, more than 375 times the price on June 1, 1990. Assume the price doesn't budge and remains the same on June 1, 1999, giving us a nine-year period to measure. That translates to a 93% average annual increase.
What if Qualcomm's stock does what Cisco's stock did?
Drum roll, please. That's the stuff everyone has been waiting for. What do the numbers look like if Qualcomm performs in their upcoming 5- and 9-year periods as Cisco did?
Qualcomm's price at the start of their tornado on April 1, 1998, was $53 9/16. If it increases at Cisco's rate of 99% for five years, the price will be $1672. If it increases at Cisco's rate of 93% for nine years, the price will be $19,901.
I'm allowing a moment of pause while you multiply those two stock prices by the number of shares you own. :)
Comparing Gorilla Opportunities
Back to Chaz too's point that Qualcomm's gorilla game offers far more opportunity than Cisco's gorilla game. I agree. The reason I'm excited about Qualcomm's game is because their product, like Cisco's, is an enabling product. The reason I'm ecstatic about Qualcomm's gorilla game is because their product, unlike Cisco's, is a world-wide consumer product.
But what the heck. If Qualcomm's stock "only" performs as well over the next five and nine years as Cisco's stock did, I'll be a happy camper.
Impact of the biggest, baddest bull market
To be realistic, the stock market in the last ten years is an unprecedented bull market that helped fuel Cisco's fundamental growth and growth in the stock price. We may not be so fortunate as to have such a powerful bull market helping the Q's stock along. Even if Qualcomm's stock underperforms Cisco's past, there's still plenty of room for spectacular growth.
Comments anyone?
--Mike Buckley |
