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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (36254)	12/30/1999 7:09:00 AM
From: bearshark	Read Replies (1) \| Respond to of 99985

Haim: I was looking at the same thing. I think the QCOMers misinterpreted the "highly analytical" forecast for QCOM yesterday. The "analyst" gave a one-year forecast which must have been interpreted as a weekly forecast.

To: Haim R. Branisteanu who wrote (36254)	12/30/1999 7:32:00 AM
From: Benkea	Respond to of 99985

Thursday December 30, 6:56 am Eastern Time Note: this article has a followup with more information. Alert: Qualcomm at 745 in Pre-market Trading, Up From 659 at Close (NasdaqNM:QCOM) Oh yea, the anal cyst report called for an annual upgrade cycle of $185 per year for like 4 bil people. I bought my second QCOM phone in about 3 years a couple weeks ago for $60 ($30 after QCOM rebate). An interesting analysis which puts QCOM's PV at more like $8 bil (about 6.5% of todays' opening price): From the anal cyst: Our estimate assumes that 3 billion phones are sold in 2010 with an average sale price (ASP) of $180 and a royalty rate of 4.5%. If we apply a 97% operating margin and 35% tax rate we are left with $13 billion of free cash. Using a terminal multiple of 60x From someone I know: I agree entirely that a patent (best), or a strong installed user base is a HUGE benefit and should tend be an asset that produces revenue way above normal returns on capital (12%). Its the numbers in the above example that absolutely floor me. I just don't see the customers... the economic pie is growing but ...sheesh. 3 billion people will buy a phone EACH year? What are there 6 billion people in the world? For a good 4 billion that purchase might be more than 10% of their annual income. I would say that perhaps only 1/4 of the world population would have their own phone. Pehaps 80% penetration in the Us Europe and Japan, and 40% in developing counties. But those mothers of 5 with unfed kids aint gonna have three phones.... will phones come for each child with afdc in chicago? Maybe 1.5 billion distint phone owners, but I would not be suprised with 750 million. Buy a new phone each year? come now... I might for a year or two...but do you think I will buy ten $185 devices in the next ten years... and I am probably in the top demographic decile. Video cameras keep improving but I am still using my five year old-one with a black and white view finder... I would rather take a ski weekend in Whistler than spend $500-800 bucks to upgrade. Unless they can find a way to make my phone completely obsolete every year I got to think three year cycle and I am a user that Could affford to upgrade...how about those more marginal users in the lower half of the 1.5 billion useres. Cut the number in half again. (but I think 1 every four years is a more likely future average). $185 price and 4.5% royalty. Ok, I can live with those assumptions...but 185 might drop to the price of a home corless phone of 50 or 100 bucks as production gets streamlined. (another possible cut in half of estimates) Ok heres the bigest haircut 60 x terminal value...pshahhh! You have already sold phones to everybeing on earth that could afford one, and who knows when those patents are gonna run out 17 years? give it a 10x terminal value and divide by 6. 13 billion income stream dived by 2 (users) 6.5 bill diveded by 2 (replacement cycle) 3.25 billion, times 10(mature terminal mutiplier for old tech). Market Cap ten years from now 31 billion, IF all this goes right! And if you wanted a 15% return you could on your money you could only afford to pay 1/4 of the future market cap of 31 billion(for the royalty stream) or 7.75 billion now. And if you instead thought only 750 miillion people would have there own 185$ device, and if they replaced it every 4 years. Well you could only pay 2 billion dollars for THAT income stream.. Current price of Qualcom 108 billion. Now I agree qualcom is the owner of some very valuable assets growing dramatically in value...but unless it has TEN other similar royalty streams or we sell a new 185$ phone to each refrigirator and washing machine in the us and waterbuffolo in botwana...the price of the stock is out of joint with the prospects.."