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

To: Morgan Drake who wrote (340)	7/29/1999 11:13:00 AM
From: Gregg Powers	Read Replies (5) \| Respond to of 13582

Let me address the stock sales and several other questions. First, Moat's statistics and analysis were very much in the ball park. Second, my firm runs $3.2 billion of 'other-peoples-money'. This means that I am a fiduciary and required to prudently manage my client's assets. Qualcomm's rapid appreciation created an arithmetic conundrum for me and my firm. If we never sold a share, we would have held more than $1.2 billion of the stock and QC would have represented over thirty percent of our assets under management. Despite my analytical sentiments on the topic, such would have been an indefensibly large, irresponsible and potentially legally actionable, allocation for a firm that represents itself to clients as value-oriented and diversified. Beyond this, many of my clients impose strict limitations on maximum position size, i.e. no security can exceed 5%, 10% or 15% of total portfolio value etc. In these cases, our sale decision was contractually stipulated. Within the context of the above, we sold the minimum amount of stock that we could as fiduciaries. As Moat correctly pointed out, QC is still PCM's largest position by a very large margin, so our sale decision was NOT linked to a change perceived fundamentals or some change in my sentiments towards the company or its management. Third, why was I silent during the period. Two reasons. First, I have always tried to be responsible, ethical and honorable in my interaction with this Forum. However, my legal responsibility to my clients takes precedence everything else. Since disclosure of PCM's need to reduce its holdings could have negatively impacted the prices received by my clients, I could not, and would not, disclose this to the Forum. On the other hand, I ethically could not, and would not, use the Forum to in any way promote the stock while I was simultaneously selling it---to do so would have been hypocritical and dishonest in the extreme. In a world of imperfect choices, I did the best I could. The second factor underlying my silence is my struggle to accurately value QC. Block and tackle analysis came first, i.e. the infrastructure business was clearly losing more money than I originally believed, so I need to recalibrate my evaluation of the current business model. ASICs and royalties are growing faster than I originally believed possible, with competition to the former being far less successful than I had expected. Beyond this, the Ericsson agreement likely expanded CDMA's global footprint into geographies that I have not considered possible only nine months ago. Nokia's eventual capitulation with make this even more obvious. So, the royalty, ASIC and handset opportunity are now far larger than I was originally contemplating. In addition, I am thrilled by the multi-mode (direct-sequence and multi-carrier) compromise. CDMA IS VERY COMPLICATED and the multi-mode standard creates still further complexity. This complexity benefits an IPR-centric leader like Qualcomm, because its patent portfolio and technology experience give it a tremendous competitive advantage. Look at the trouble Nokia and Motorola have had stabilizing their 'run-of-the-mill' IS-95 chipset. It should thusly be obvious that the greater challenges inherent in a potential multi-mode chipset favor Qualcomm. Finally, will all due respect, Mika is incorrect about GPRS. Several carriers have specifically told me that GPRS will require both new handsets and infrastructure replacement. I believe that this is one of the reasons why the GSM carrier community is so rabidly anti-IS-95/cdma2000. Since IS-95 carriers have a MUCH CHEAPER, MUCH SMOOTHER AND MORE FLEXIBLE upgrade path, they will have a significant competitive advantage as high data rate services take off. The TDMA-based GSM community would very much like to have leveled the playing field, but the Ericsson deal changed the equilibrium. As for Nokia's pursuit of GPRS/EDGE, well gee whiz Mika, I guess that's all Nokia can do right now considering it doesn't have a CDMA infrastructure license. Do you really expect Nokia to go around telling customers that GPRS is an inferior, more costly, upgrade path that will yield lower data rates that 1XRTT, impose substantial spectrum planning challenges, obsolete existing handsets and then obsolete these newer handsets again when EGDE gets deployed? Not bloody likely. Nokia's credibility is getting stretched pretty thin on this topic in my humble opinion. All the best, Gregg