Lady,
Re: Gregg Powers comments on Qualcomm and momo and MoneyCentral link
<< Frank said: Check out Q's ipr stream and re-evaluate your hasty conclusion. Once the momos do their thing, Mr. Market will reward Q shareholders based on the foreward looking prospects for revenue growth." >>
Yesterday Gregg Powers name was brought up as an informed and authoritative source relative to commenting on Q IPR. Below is a timely article that quotes Gregg (who no longer posts on these boards).
HOW QUALCOMM EVOLVED INTO A MOMENTUM STOCK
moneycentral.msn.com
Excerpts of the above article by Mike Robbins follow:
>> Strategies How Qualcomm evolved into a momentum stock Few stocks in recent memory have had a better year than wireless wonder Qualcomm did in 1999. But what drove this phenomenal growth? We asked the smart folks who saw it coming. By Mike Robbins
Qualcomm, the wireless-communications company, might well be remembered as one of the great technology stocks of the 1990s, but it sure didn't seem that way 15 months ago. Back then, a word like unimpressive was a more-accurate description than unstoppable.
"There were times in October 1998 when the stock was trading below its levels of 1993," says Robert May, manager of the Trent Capital Equity Fund, the mutual fund that owned the highest percentage of Qualcomm (QCOM) in early 1999, according to Morningstar.
But a lot can happen in a year. Qualcomm posted an astonishing 2,619% gain in 1999, before giving up some of those gains in early 2000. Seemingly overnight, Qualcomm was a $100 billion company often mentioned in the same breath as such technology blue-chips as Cisco Systems (CSCO) and Sun Microsystems (SUNW). The rally was all the more stunning since Qualcomm was no hot IPO, and hadn't even introduced a breakthrough technology during the year.
So what happened? In this column, and in several more we plan to publish every other Wednesday for the next couple of months, we'll try to explore exactly how a stock makes the transition from value stock to growth stock to momentum stock. It's largely unexplored territory, and we hope the detailed and varied tales of success will help you understand both how stocks change constituencies, and how you can find these stocks in transition as early in the move as possible.
Rocketing to the moon For Qualcomm, the moon launch can be reduced to one word -- or, more accurately, an acronym: CDMA.
For the uninitiated, that's code division multiple access, a technology that Qualcomm hopes will become to cellular communications what Windows is for PCs. Interestingly, CDMA technology actually debuted in 1989, but Qualcomm stock didn't feel its true impact until a decade later. Why now? There's little debate that the first major catalyst was the resolution of a three-year-old CDMA-related patent-infringement lawsuit against cell-phone giant Ericsson (ERICY) in late March 1999. At the beginning of 1999, Qualcomm traded at $6.41 (all prices adjusted for splits). As late as March 22, the stock was only at $10.27. But after the Ericsson announcement, Qualcomm rocketed to $21.22 by April 17.
The Ericsson agreement aided Qualcomm on a number of fronts. Ericsson agreed to purchase Qualcomm's wireless infrastructure business, an earnings growth laggard. Ericsson also agreed to recognize Qualcomm's patents on CDMA, providing significant royalty income. But most importantly, Ericsson was recast from vocal opponent of CDMA to powerful supporter. That fact more than any other convinced Wall Street that the time was right to buy Qualcomm.
"Up until March, Ericsson was always adamant in spreading misinformation that Qualcomm and CDMA were unnecessary," says Gregg Powers, president of Private Capital Management, long Qualcomm's top shareholder. "The market was saying 'Qualcomm says one thing, Ericsson says another -- why should I believe Qualcomm?' The agreement was an implicit admission of the necessity of CDMA."
The battle over wireless standards To understand why Ericsson's support of CDMA was so vital to Qualcomm requires a quick primer in the high-stakes battle over wireless standards.
Most analysts agree that the cellular industry is likely to settle on a single technology at some point in the future. The question is, which will it be? Until 1999, Qualcomm's CDMA seemed to many an unlikely choice: Its market share was dwarfed by that of rival technologies TDMA (time division multiple access) and GSM (global standard mobile). Even after 1999's gains, CDMA's share of the market is still only around 10%. What's more, until the Ericsson agreement, Qualcomm was fighting for CDMA virtually on its own against some better-financed and better-positioned adversaries. But CDMA did have one advantage: It widely is considered the superior technology for wireless data transmission, a fact that became increasingly important as projections for the wireless data market grew. "I'd like to claim that it was because I had a 200 I.Q. But after we did our research, Qualcomm's potential was obvious. Truth is, anyone who put in the time to do the research could have figured this out." -- Gregg Powers, president of Private Capital Management Qualcomm's good news kept on coming The Ericsson agreement wasn't the only factor weighing in Qualcomm's favor. In early July, it was disclosed that the stock would be added to the S&P 500 Index ($INX), thereby drawing a slew of new cash from index investors. In mid-July, the firm topped analysts' quarterly earnings estimates. On Nov. 2, Qualcomm CEO Irwin Jacobs announced that the company would top earning expectations for the sixth consecutive quarter, and that same day announced that the stock would not just split for the second time in 1999, but split 4-for-1.
When Jacobs made his Nov. 2 announcement, the stock was trading at $56.20. By year's end, it was at $176.13. "It has been another eventful year for Qualcomm," Jacobs said in November, a bit of an understatement.
The fortunate few A lot of investors made a lot of money in Qualcomm in 1999. But few did better than those who bought the stock before takeoff and held it through the year's end. High on that list are Gregg Powers and Robert May. What did Powers and May see that so many of the rest of us missed?
"We're value investors," says Powers. "We found an undervalued asset." That's right: The biggest shareholder in one of 1999's hottest high-tech momentum stocks was a value shop. "We felt that Qualcomm's technology was quantitatively and qualitatively superior to the competitors, and that its market cap didn't reflect that," he says. "So we bought shares four or five years ago, and hung in there. We were convinced that CDMA would become the industry standard."
For his part, May never was certain that CDMA would win in the end -- but he liked its chances and considered the gamble worth taking. "We saw a small company with a world-class patented technology," he explains. "Qualcomm was a $4 billion company while the Ciscos and Lucents of the world were in the $100 billion-to-$200 billion range. True, the best technology doesn't always win -- Beta was better than VHS and a lot of people think Windows wasn't the best operating system, but it was a good risk."
Of course it takes more than a hunch. Powers estimates that Private Capital Management invested up to 1,000 hours researching the matter. Much of this time was spent contacting everyone the firm could reach in the wireless communications field to find out how the insiders handicapped CDMA and its competitors. "It was a matter of knowing who to believe," he says. "When Ericsson said that Qualcomm's patented technology was not vital, I kept digging. What I found was that people who ought to know what they're talking about laughed when they heard comments like this from Ericsson."
Powers and May also saw that the future of wireless communications was likely to lean toward data transmission. "With wireless data capabilities, you're no longer talking about 30%, 40%, 50% penetration," says Powers. "Suddenly it's 300%, 400%, 500% penetration. It's not just handsets; it's redefining the possibilities."
<snip>
What did it take to spot Qualcomm before the crowd? It required a certain understanding of wireless technology, the resolve to hang with a laggard stock throughout the mid 1990s, and the willingness to bet on a technology that, despite its promise, was no sure thing. But both Powers and May conclude that this was a stock opportunity that could have been uncovered by anyone willing to put in the work.
"I'd like to claim that it was because I had a 200 I.Q.," says Powers. "But after we did our research, Qualcomm's potential was obvious. Truth is, anyone who put in the time to do the research could have figured this out."
- Eric -
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