Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : The New Qualcomm - a S&P500 company -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (327)	7/28/1999 4:18:00 PM
From: SKIP PAUL	Read Replies (1) \| Respond to of 13582

I opine that without some quantum leap, QC is fully valued as a handset, ASICs and royalty company. Not that it will not continue to reward investors, just that it will not be in the same magnitude as it did so far this year. Can't believe Ramsey saying this. QCOM current price barely comprehends it's current earnings. There is nothing in the price for 3G, WK, Cinecom, and the dozens of new businesses that are going to spawn.

To: Ramsey Su who wrote (327)	7/28/1999 6:31:00 PM
From: Gregg Powers	Read Replies (8) \| Respond to of 13582

Ramsey: I presume your comment regarding Qualcomm's 'full valuation' is an attempt to provoke debate rather than a carefully researched conclusion?! I, for one, have been struggling to bound the economic opportunity, particularly given some of the unknowables. But, the stock does not appear richly valued based on tangible, near-term fundamentals. Consider that the company earned $0.86 (pro forma) during the June quarter. Bake into the equation that handset production was component constrained for both Qualcomm and its licensees. As a result, handset revenue was lower than would have otherwise been possible, handset margins were lower than otherwise possible (due to reduced overhead absorption etc), royalties were less than possible (since licensees couldn't build/ship as much product as demand called for) and ASIC volumes were also lower than possible (for the same reason). It would thusly appear that the business model will therefore support substantial additional margin (and earnings) leverage. This operating leverage will be applied to rapidly expanding revenues. For example, excluding infrastructure operations, ASICs, handsets and royalties grew in excess of 25% year-over-year despite the aforementioned production constraints. And even this metric is deceptively low, because the Sony share of QC revenues declined significantly year-over-year; so 100% QC revenue increased by some larger, but currently incalculable, percentage. Put this all together, and one is not hard-pressed to see earnings power in excess of $4.00 share during calendar 2000. Such a performance would leave Qualcomm, perhaps THE preeminent investment in wireless IPR, trading at only a modest premium to the market multiple. As such, methinks you are being pretty conservative with your valuation assumptions just based on what is visible right now. How about possibilities that are not currently visible? Ericsson, the world's second largest cellphone company, will shortly introduce an (IS-95) CDMA phone based on the Qualcomm chipset. Presumably, given its recent acquisition, Ericsson also intends to sell CDMA infrastructure. The latter observation makes me ponder what I call the "power of incumbency". Wireless operators are loathe to switch from their prime contractor; this reticence helped keep Motorola in the CDMA business for three long years while the company struggled to stabilize its hardware. The same reticence suggests to me that Ericsson will be hard pressed to displace existing CDMA network vendors from their current customers. So, to whom does Ericsson expect to sell CDMA infrastructure? Well, there are a number of GSM/TDMA centric Ericsson customers in the US and worldwide that might just consider a trial network or two or three or.... Have you considered this possibility and its economic implications? Do you understand that TDMA-based GSM (and IS-136) face an extraordinarily cumbersome and expense migration path to high speed data? Do you know that GPRS will require essentially a complete network overbuild in order to achieve 114kps? Do you understand that EDGE will subsequently require new handsets, on top of this new infrastructure, to push data rates only to 384kps+. Do you understand that Phase I of cdma2000 will yield 144kps data rates, double the voice capacity of existing IS-95 networks, and BE BACKWARD COMPATIBLE with existing handsets in the field? Do you understand the deployment advantages, and flexibility, of cdma2000's 1.25mhz design? Do you understand that operators with 5mhz of spectrum can mix and match voice channels and high speed data? Do you understand that Phase I can be deployed as a field upgrade without replacing existing infrastructure? Do you understand the tremendous economic advantage that this confers to IS-based, CDMA-centric, operators? The capital investment and performance deltas between TDMA and CDMA are shifting even more dramatically in the latter's favor. Meanwhile, Phase II of cdma2000 pretty much puts the nail in tdma's coffin longer-term. So what will the wireless world look like in two or three years? Will wireless internet appliances, prototyped by QC's pdQ, become ubiquitous? How rapidly will wireless data become part of our every life, ala the Internet? Will the capacity gains afforded by 1XRTT begin to enable mobile wireless networks to compete head to head with landline? I could prattle on and on, but the point is, telecom is perhaps one of the world's most dynamic industries. Wireless telecom is the most rapidly growing subset of telecom. And, Qualcomm is positioned as the technological locus of both 2G and 3G wireless...and you think that Qualcomm should be valued like the run-of-the-mill large capitalization equity? Within the context of the above, I am sure that many people thought Microsoft was fully valued, based on its high PE multiple, back in 1986. If the personal computer had remained a toy rather than evolving into a critical business productivity tool, such a conclusion might have been warranted. It took tremendous vision to understand that Microsoft's software was an enabling technology that would allow PC's to become mainstream business tools. I would be disappointed if you fail to perceive that parallelism as it relates to CDMA and wireless telephony. All the best, Gregg

To: Ramsey Su who wrote (327)	7/28/1999 6:44:00 PM
From: Clarksterh	Respond to of 13582

Ramsey - Not being an engineer myself, it is my understanding that wireless will NEVER be superior to some type of wired system, such as fibre optics. Fortunately, the desire to be mobile gives CDMA a huge market. Never is an awfully long time, but I agree that for whatever is bleeding edge data rates of the time (e.g. right now that is multiple Mbps or Gbps), wireline will remain cheaper for the forseeable future just because wireless doesn't have the capacity. For wireless all those pesky other guys keep interfering with my signal unless I constrain them and thus myself. But wireless will continue to gradually move up the crossover point for wireless vs wireline. CDMA did this by 'averaging' those pesky other users so that I can be pretty confident that no one is going to be near me and 'shout' in my 'ear' thereby drowning out what I was trying to 'hear'. CDMA also, on the forward link, actually uses a mathematical trick to cancel out many of the other users. Future technologies which increase the capacity of wireless will be things which further isolate the links (e.g. phased array antenna, which is going to be a challenge for CDMA with all its multipath recovery, or OFDM which could allow a user to 'cancel out' other users even on the reverse link.) All JMO. Clark