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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Cosmo Daisey who wrote (33656)	6/30/1999 9:16:00 AM
From: slacker711	Read Replies (2) \| Respond to of 152472

Complete Lehman report from 6/23..... lehman.com Headline: QUALCOMM:Happy Travels With Mgmt, Strong Trends, Ests & Target Raised, Buy Author: Tim Luke (212)526-4993 Rating: 1 Company: QCOM Country: EPS CUS Industry: TELECM Ticker : QCOM Rank(Old): 1-Buy Rank(New): 1-Buy Price : $130 11/16 52wk Range: $121-19 Price Target (Old):$150 Today's Date : 06/21/99 Price Target (New):$165 Fiscal Year : SEP ------------------------------------------------------------------------------ EPS 1998 1999 2000 2001 QTR. Actual Old New Old New Old New 1st: 0.29A 0.33A 0.33A - -E - -E - -E - -E 2nd: 0.13A 0.41A 0.41A - -E - -E - -E - -E 3rd: 0.17A 0.65E 0.68E - -E - -E - -E - -E 4th: 0.27A 0.72E 0.76E - -E - -E - -E - -E ------------------------------------------------------------------------------ Year:$ 0.85A $ 2.11E $ 2.18E $ 2.78E $ 3.02E $ - -E $ 3.70E Street Est.: $ 2.01E $ 2.02E $ 2.67E $ 2.71 $ 3.61E $ 3.61E ------------------------------------------------------------------------------ Price (As of 6/17): $119 15/16 Revenue (1999): 3.6 Bil. Return On Equity (99): N/A Proj. 5yr EPS Grth: 35.0 % Shares Outstanding: 148.0 Mil. Dividend Yield: N/A Mkt Capitalization: 17.75 Bil. P/E 1999; 2000 : 56.8 X; 43.1 X Current Book Value: $6.86 /sh Convertible: YES Debt-to-Capital: 99.8 % Disclosure(s): C, A ------------------------------------------------------------------------------ * After spending several days travelling with senior QUALCOMM management visiting investors in Europe, we maintain the wireless industry innovator and CDMA pioneer is continuing to experience strong trends across its all three of its core businesses of CDMA chipsets, handsets, and royalties. * Believe QUALCOMM's chipset unit has seen exceptionally robust trends in third quarter 1999 with sales now likely to exceed our estimate of $260 million versus $230 million in second quarter 1999 and visibility remaining good through fourth quarter 1999. Upside in fiscal 2000 could come from discussions with key target accounts; Ericsson, Motorola, Kyocera, and even Nokia potentially leading to new orders. * QUALCOMM's handset unit continues to make strides in improving operating margins with new ThinPhone seeing strong demand. Official launch of ThinPhone by Sprint PCS over next several weeks could coincide with new order announcements. Delays in launch of dual-mode offerings by rivals, i.e., Nokia also helping (sales may reach $450 million in third quarter 1999 versus $400 million in second quarter 1999). * CDMA royalty revenues should sustain impressive growth as network rollouts gain momentum in Japan, Brazil, and China and as sub growth accelerates in Korea and the United States with key vendors such as Nokia and Motorola releasing new handsets. Royalties to move from $77 million in second quarter 1999 to at least $85 million in third quarter 1999. * Based on strong revenue and margin trends, our high end earnings estimates move upwards for fiscal 1999 from $2.11 to $2.18 and for fiscal 2000 from $2.78 to $3.02. Continue to believe these estimates are likely to be revised steadily upwards as CDMA gains momentum around the world. Reiterate our 1 Buy rating and raise our price target from $150 to $165 or 40-45 times our initial calendar 2001 estimate of $3.90 ------------------------------------------------------------------------------ Summary: Last week, we hosted a trip to Europe with QUALCOMM President and COO Rich Sulpizio to visit with institutional investors in several countries. Mr. Sulpizio has been one of the key architect's of the recent upswing in QUALCOMM's operating performance and management's upbeat tone during our meetings with investors appeared to confirm our view that the company is benefiting from strong demand trends across all three core businesses as CDMA growth accelerates around the world. Mr. Sulpizio's visit included a keynote speech at Lehman Brothers Seminar in London on Wireless Data and Third Generation Networks. While we consider QUALCOMM is seeing impressive trends across all three of its principal units, we are especially impressed by the outlook for the CDMA chipset division. In addition to strong visibility on orders for third quarter 1999 and fourth quarter 1999, we maintain that QUALCOMM could potentially see incremental growth possibilities if the company is successful in translating initial discussions with key handset vendors such as Ericsson, Motorola, Kyocera and even Nokia into expanded chipset sales. While we do not expect any news or announcements on any of these potentially significant vendors for some time (months as opposed to weeks), we are encouraged that the door has been opened for discussions with these key players. In the meantime, we continue to see QUALCOMM adding functionality and features to it chipsets with more DRAM and more Memory and even a second CPU. We have also been encouraged made by the progress made by the handset division in improving its operating margins. We believe management has set aggressive targets for this unit (including double digit operating margins by first quarter 1999) and consider that the management team is willing to consider a range of strategic options if these tough goals are not met over the next 12 months. As highlighted above, the official launch of the ThinPhone by Sprint PCS during July may provide another catalyst for investors and supply further evidence of order visibility. New Estimates Conservative We continue to believe our earnings estimates may be revised steadily upwards over the balance of 1999. In third quarter 1999, we believe our estimates for chipset sales at $260 million versus $230 million in second quarter 1999 may prove conservative as QUALCOMM benefits from ramping shipments of the new MSN3000 chipset. Royalty revenues may be another area of possible area of upside. We have now modeled $85 million in royalties for third quarter 1999 up from a prior level of $80 million and up modestly from $77 million. We also maintain that substantial improvements in QUALCOMM's operating costs in the handset area may lead to margins improving at a faster rate than we have modeled. Stock Opinion; Estimates Raised, Reiterate 1 Buy Rating, Target $165 Based on this robust outlook, with CDMA hitting its stride and visibility improving on third quarter 1999 and the balance of fiscal 1999, we have raised our high end estimates for QUALCOMM. Our earnings estimates for fiscal 1999 and fiscal 2000 have moved from $2.11 and $2.78, respectively, to new levels of $2.18 and $3.02. Our revenue estimates (ex-royalties) are $3.7 billion in fiscal 1999 and around $4.1 billion in fiscal 2000. We are currently looking for royalty revenues to increase from $214 million in fiscal 1998 to around $297 million in fiscal 1999 and as high as $392 million in fiscal 2000. With QUALCOMM's gross and operating margins likely to provide considerable leverage, we believe these estimates may prove conservative and we believe our estimates may move steadily high over the balance of fiscal 1999. We are currently modeling that QUALCOMM's operating margins should move from 3.7% in second quarter 1999 to around 13.6% by the end of fiscal 1999. We anticipate further upward revisions to our estimates during fiscal 1999. Looking forward, we remain encouraged by the strong growth prospects for both QUALCOMM and the global CDMA market. We agree we management's bold statement that the transition around the globe to CDMA-based networks should be seen in terms of "when not if." In the United States, we believe the highly successful one-rate plans offered by many major carriers such as Sprint are likely to continue to drive rapid CDMA subscriber growth. Overseas, the removal of uncertainty of standards should help several large new markets such as Japan, Brazil, India, and China gain momentum in 1999. Following the conclusion of the landmark settlement between Ericsson and QUALCOMM, we believe QUALCOMM will benefit from increased royalty revenues as the existing CDMA market expands (following Ericsson's endorsement of that market) and as a converged global third generation wireless standard based on CDMA begins tobe deployed. We continue to view QUALCOMM as a highly attractive investment vehicle in the wireless equipment sector. Our 1 Buy rating and our new 12-month current price target of $165 is based on QUALCOMM achieving a multiple of around 40- 45 times our new high end calendar 2001 estimate range of $3.90 to $4.00. BUSINESS DESCRIPTION: QUALCOMM provides advanced communications systems and products based on digital wireless technology. These include the OmniTRACS systems and digital wireless telephone systems based on CDMA technology. ------------------------------------------------------------------------------ Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities. This document is for information purposes only. We do not represent that this information is complete or accurate. All opinions are subject to change. The securities mentioned may not be eligible for sale in some states or countries. This document has been prepared by Lehman Brothers Inc., Members SIPC, on behalf of Lehman Brothers International (Europe), which is regulated by the SFA. ]