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

To: Ramsey Su who wrote (1576)	9/15/1999 10:45:00 PM
From: Wyätt Gwyön	Respond to of 13582

Ramsey, How do we re-evaluate the value of the New Qualcomm now, without infra and without handset? As I think idler's meeting notes mentioned, this move was driven by Thornley as opposed to scientists. QCOM will have potential for a much higher multiple, based on higher return on invested capital (ROIC). That is the magic potion for all of the markets killer stocks--CSCO, MSFT, DELL, EMC. The idea is, make each invested dollar produce a high proportion of high-margin income. As I noted in an earlier post, keeping the handset div. may have been justified for strategic or engineering reasons (obviously not enough!), but from a stock evaluation perspective, the potential is much greater now. QCOM has gone "up-segment". Here is a simplistic and imperfect analogy off the top of my head: imagine a car wash where the after-wash wiping stations are segregated according to car value. Cars with a value of 25K or less are wiped by the person at Position A. Cars with a value over 25K are done by the person at Position B. Those positions are the market segments. Now, imagine that the prospective car wipers have to bid for those positions and "rent" them from the car wash owner. They will base their bids (stock price) based on how much money they think they can earn from tips (earnings) at one station or the other. Position A may have a higher volume of cars to wipe (sales), but those people are cheap tippers (earnings), so it's a low-margin biz. In contrast, the tippers for Position B may be lower in volume (sales), but they can be expected to tip higher. Therefore, prospective wipers bid up the price of Position B even though that person ends up wiping fewer cars. Now let's say the car wash (overall market--for CDMA in this case) itself grows, and the owner of each station can expand his volume (revs) within his respective segment--by, say, adding helpers, etc. Each will consequently have more tips (earnings), but B's will expand faster. Taking that market expansion also into consideration, prospective wipers will value Position B even higher. My point is that, QCOM is going from Position A to Position B (or, to mince a little bit, maybe A to B was selling infra, and then selling handsets will be going from B to C). Expect this will take a few quarters to play out. The point is, going forward, all the cash Q has can be directed at the highest-margin areas of its biz. Investors, realizing this, will bid up the multiple. Who knows how much more valuable this will be to the market? And what will Q do with its billion and with proceeds of handset sale? Should be exciting, and I look forward to expansion of the run-rate multiple (PE) going forward. JMHO, Greg