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

To: FedWatcher who wrote (1271)	9/3/1999 6:34:00 PM
From: Gregg Powers	Read Replies (5) \| Respond to of 13582

Good question. The Christmas selling season accounts for some 40% of the handsets sold in this country. It's where marketshare is made or lost. Samsung, Motorola and Nokia are all trailing Qualcomm in CDMA marketshare. They want to improve their position, and I suspect that their principal weapon is price. Understand that handsets are not the pure commodities that people make them out to be...it takes time for a carrier to train its sales personnel, it takes time to make sure that a handset will perform within specification on the network, it takes dollars to induce the carriers to expand the shelf-space for new items, and it imposes an inventory burden to support additional SKUs into the future. My suspicion is that some carriers are leveraging the manufacturers' market share ambitions in order to wring some price concessions from Qualcomm. I think it is important to keep these pressures in proportion. Remember, both MOT and Nokia, to the extent that they rely on their own chipsets, have a substantial direct cost disadvantage versus Qualcomm, i.e. Qualcomm can spread the R&D for its chips over its entire customer base, whereas NOK/MOT are only building for internal consumption. In addition, NOK/MOT/Samsung obviously pay Qualcomm royalties...which creates a further, embedded margin advantage for Qualcomm. So, on the margin, QPE can get dinged for a few points of spread by the competition...but the pain inflicted on the competitors is greater than the pain inflicted on Qualcomm. As I said, the issue remains one of proportion. Those who are panicking have chosen to focus on handset margins, in insolation, without considering the full flow of revenue and income through the business model. To the extent that Qualcomm competed on price, it apparently captured additional volume. Higher volumes, to some degree, offsets the impact of lower gross margin per phone. I suspect that management chose to defend volumes in anticipation of a mitigation of the component shortage next quarter...simply put, the cost of goods is likely to improve sequentially on greater volume. I find it remarkable that the stock could be hit so hard by an analyst's comment that so much reflected the third quarter press release. It seems apparent that many pure momentum times have barrelled into the stock, simply extrapolating last quarter's degree of outperformance on their spreadsheet. They, of course, are likely to be whipsawed by the calendar fourth quarter results. From a big picture perspective, it's healthy to let a little air out of the balloon. The stock couldn't keep going up ten points a day indefinitely...and its better that management kept expectations from running ahead of internal realities. The only people damaged by management's prudence are those haven't taken the time to understand, or those with a time line shorter than their nose. All the best, Gregg