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

To: Clarksterh who wrote (37703)	8/5/1999 4:50:00 AM
From: Maurice Winn	Read Replies (1) \| Respond to of 152472

...and furthermore. Government uses force against people's will, confiscating their property and lives. $ill Gates can't use force and doesn't even have patent protection [or didn't until recently according to your software patent comments]. $ill operates in a voluntary world of 'free will', only acquiring money from people who choose to give it to him. The government allows no choice - they literally take the money. You may not even abstain. What's interesting is that government is supposed to collect the money for community good. I wouldn't mind betting that $ill Gates, through voluntary collection of $$$billions achieves MUCH more good than a hundredth the money going through government hands. Even the making of the money is community good, because people like the software he supplies. But then, he is going to pay for disease destruction, education and other stuff which is a diffuse benefit so can't be charged for. There is a good chance he'll achieve some serious improvements because he isn't just running a bureaucratic government department - he will want to actually finish cancer, malaria, AIDS or whatever off altogether. He won't be interested in just keeping a program running forever. You put a government department in charge of killing malaria and the first thing they'll want to do is avoid actually succeeding because their cash flow will dry up. Nixon declared war on cancer [after bombing Vietnam and Cambodia]. Well, 30 years later and he achieved nothing much at all in the war on cancer. Well, I know people will list a million achievements, so I'm exaggerating to say nothing much at all, but you know what I mean. It seems fair enough for Bill to say his stuff can only be used in a machine which has no Netscape. I'm in favour of freedom of association. It seems silly for $ill to do that, because it increases the need for people to find a way around him. The higher the competitive voltage, the more likely there is to be a spark across, short-circuiting him. Better to do like Q! and simply race ahead so fast that nobody can compete. To say 'good for the economy' is coming close to suggesting there is a 'greater good' and the next step will be to confiscate private property for 'the greater good'. It isn't $ill's or Q! jobs to be 'good for the economy' other than via 'the invisible hand' whereby what is good for the individual is good for the thing it is part of. Free choice ensures that happens. As you say, monopolies tend to be inefficient - yes, they grow fat, dumb and lazy. While they have an energetic supremely capable person at the top, they tend to continue well, but when they go, it starts to erode and before you know it, the monopoly and super profits are in tatters. But the biggest and fattest and laziest monopoly is invariably government. I've seen literally thousands of businesses and hundreds of government agencies. ALWAYS the governments are slack, inefficient and expensive. The privately owned businesses with a single person in charge are most efficient. Oddly enough, the people working in them seem happiest too. Governments are not happy places, despite the good pay, security and stuff. People in governments tend to be slightly dead looking, weighed down by a multitude of rules and lack of goals with competitive consequences. I'm not aware of any abuse of monopoly power other than that provided by state power. The proper redress for those situations is to remove the state support for the monopoly. So allow NZ sheep to be sold in USA. Allow anyone who is capable to fly any air route. Cancel the medical cartel and FDA powers to write their own cheques with restrictive trade practises. Sell spectrum on 10 year management rights to the highest bidder, not people with melanin, the right chromosomes or those who operate small businesses only. On the cost of PCs. In 1981, I reckoned that everything would switch around. At that time, the hardware cost a fortune, the software was cheaper and the user's time was of little interest. I thought it would change so that the hardware would be cheap, the software more expensive and the user's time the big item. That seems to have happened. But there is no law of the jungle which says software should or shouldn't come down more than computers. It's all just a competitive balance and what the market will bear. If a 20 year 90% market share can be maintained, that will mean huge profits. If people think it's a good profitable line, they should compete. If they can't, bad luck - better buy the stock of the 90% market share company. I really, truly, see no problem with any commercial monopoly I've ever heard of [unless government backed and I worked for one = the oil industry in NZ]. Mqurice PS: An area of monopoly I'm not touching here is patent power, which is state power backing individual creativity and ownership of that creativity. That's a more tricky area. You've thought more about it than I have and in that area I think you back the monopoly power? Yes? I'm not clear in my mind about that. I do think a 1000 year patent monopoly would be bad because creativity is not such a rare beast. But a two day ownership of the creation seems too short. Without some protection, creativity would be limited severely. Singers would work for very little. CDMA would be copied and Irwin and Co would have to work for the fun of it only. Maybe that's enough. I really don't know about patents monopolies.

To: Clarksterh who wrote (37703)	8/5/1999 11:53:00 AM
From: Bux	Read Replies (1) \| Respond to of 152472

Clark, I enjoyed your comments regarding Microsoft, Bill, monopolies and IPR. Maybe you should invest in MSFT. Think of all the advantages; 1) No longer need to worry about MSFT stealing QCOM IPR. 2) The only big monopoly you can profit from. 3) Every time you buy a new PC you will get a warm fuzzy feeling. 4) Windows seems to be more stable when you are a shareholder. 5) When it does crash, instead of feeling anger, a little grin will form as you are reminded of Bill's genius for profiting so handsomely from such a mediocre product. It has certainly improved my outlook on life. Bux

To: Clarksterh who wrote (37703)	8/5/1999 7:14:00 PM
From: LBstocks	Read Replies (1) \| Respond to of 152472

QCOM: The Economics of Royalties and Direct Sales Explained Salomon Smith Barney Wednesday, August 04, 1999 -------------------------------------------------------------------------------- --SUMMARY:--QUALCOMM, Inc.--Telecommunications Equipment * We continue to recommend Qualcomm with a 1-H rating. * Stock weakened when Motorola reiterated that it plans to enter the CDMA chipset market * Regardless of source component supplier, Qualcomm still gets a royalty fee on "every" CDMA phone and infrastructure sold. * If Motorola sells the chipset without software no royalty is paid to Qualcomm by Motorola, BUT the fee would be paid by the company writing the software and/or using the chipset. * Manufacturers that use QCOM's ASICs receive a discounted royalty fee so their rates would rise if they purchase chipsets from others. * Ericsson's recent decision to use QCOM's chipset despite reviewing "ALL" other potential suppliers highlights the QCOM advantage. --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 09/98 EPS $0.29A $0.13A $0.14A $0.27A $0.82A Previous 09/99 EPS $0.30A $0.41A $0.75E $0.90E $2.40E Current 09/99 EPS $0.30A $0.41A $0.75E $0.90E $2.40E Previous 09/00 EPS $N/A $N/A $N/A $N/A $4.00E Current 09/00 EPS $N/A $N/A $N/A $N/A $4.00E Previous 09/01 EPS $N/A $N/A $N/A $N/A $5.30E Current 09/01 EPS $N/A $N/A $N/A $N/A $5.30E Footnotes: --FUNDAMENTALS-------------------------------------------------------------- Current Rank........:1H Prior:No Change Price (8/2/99)......:$152.50 P/E Ratio 09/99.....:63.5x Target Price..:$210.00 Prior:No Change P/E Ratio 09/00.....:38.1x Proj.5yr EPS Grth...:44.4% Return on Eqty 98...:48.9% Book Value/Shr(99)..:7.01 LT Debt-to-Capital(a)0.2% Dividend............:$N/A Revenue (99)........:3649.00mil Yield...............:N/A% Shares Outstanding..:159.0mil Convertible.........:No Mkt. Capitalization.:24247.5mil Hedge Clause(s).....: Comments............:(a) Data as of the most recently reported quarter. Comments............: --OPINION:------------------------------------------------------------------ At yesterday's Annual Analyst Meeting, Motorola announced, as it had last year, that it plans to enter the market for CDMA chipsets. We believe there is no negative financial impact to Qualcomm. Thus, we continue to recommend Qualcomm with a 1-H rating. In our opinion, the weakness is an excellent opportunity to purchase shares in a company that is fast becoming synonymous with the wireless internet. 1) Qualcomm is paid a royalty fee by manufacturers of wireless equipment, including mobile phones, base stations and chipsets that utilizes one or all of its several hundred patents. This is true regardless of the source of the components used in the equipment. Moreover, the rate is the same whether the manufacture uses one or all of Qualcomm's patents. 2) Qualcomm has licensed others the ability to manufacture chipsets for CDMA in order to broaden the market and to meet the multiple source requirements of other manufacturers. In addition to Motorola and Lucent, LSI, DSP Communications, Prairie Communications and VLSI have the right to manufacture CDMA chipsets under license from Qualcomm. Motorola can sell CDMA ASICs but would have to pay Qualcomm a royalty fee unless the chipset is sold without the software. The buyer of the ASIC, who would then write the software, would be responsible for paying the royalty to Qualcomm. In either case a royalty fee is paid, it is just a question of who will pay Qualcomm. 3) Qualcomm's licensees receive a discount on their royalty fee if they purchase their chipset requirements from Qualcomm. Thus, manufacturers that elect to purchase their requirements elsewhere would have to pay a higher royalty fee. This would be the case if for example a handset manufacturer were to purchase their ASICs from any of Qualcomm's licensees. Despite having to pay a higher rate, companies such as Nokia have elected to use their own ASIC because of their view of the competitive advantage of having written their own software. Others such as Ericsson, most of the Koreans and Japanese manufacturers as well as for some of Motorola's products, the choice was to use Qualcomm's ASICs due to price, features, reliability and time to market issues. After all, Qualcomm only designs the ASICs and writes the software. The production capacity is actually provided by Intel and IBM. The following is an excerpt from our recent Qualcomm report on the economics of Qualcomm's business. We believe it would be useful to reprint it here. The profitability of various outcomes differ, but regardless of the components used and the manufacturer, Qualcomm will get its share of every CDMA phone sold and CDMA infrastructure sold. The economics of Qualcomm's business model vary considerably depending on whether the phone is sold by: 1) QUALCOMM; 2) a licensee that purchases ASICs from QUALCOMM; 3) a licensee such as Nokia and Motorola that use their own ASICs; or 4) Motorola. Thus, we have put together a table that illustrates the different operating margin contributions. Our assumptions are that the average royalty rate paid to QUALCOMM on a mobile phone is 4% of the "factory price" of the phone except for Motorola, which only pays about 2.5% of the factory price of the phone. On ASICs, we assume Qualcomm's gross margin is close to 55% and 50% for operating margin. Thus, a single ASIC can contribute as much as $12 to the pretax line. We have excluded the royalties from wireless infrastructure from this exercise since it is much more concentrated and the infrastructure vendors are likely to continue to purchase all their ASIC needs from QUALCOMM since it is a low-volume proposition. In fact, 10 times as many mobile phone ASICs are sold than infrastructure. Thus, if a phone is sold for a factory price of $200, the following operating income contribution would occur: Figure 1: Economics of Royalties vs. Direct Sales Source of Phone Sale Assumptions Margin Contribution QUALCOMM $200 * 6% operating margin $12 QCOM licensee that is $200 * 4% + $12 $20 also an ASIC customer Licensee w/own ASIC $200 * 4% $8 Motorola w/own ASIC $200 * 2.5% $5 From the chart above, it is clear that: 1) Qualcomm's handset division must generate at least 10% operating margin in order for the company to be able to justify remaining in the business once the industry has sufficient handset capacity; 2) the most profitable outcome for QUALCOMM is for the Koreans and the Japanese manufacturers to be successful not only in their home markets but on a more global basis; 3) and the least profitable would be a world dominated by Motorola. Neither extreme is likely to occur. Our assumptions are for QUALCOMM to continue to grow its mobile phone sales at a rate slightly less than the market, while mobile phone sales whether its CDMA, GSM or D-AMPS continue to be dominated by Motorola and Nokia.