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

To: T L Comiskey who wrote (64536)	1/26/2000 2:41:00 PM
From: TCGNJ	Read Replies (1) \| Respond to of 152472

Thread, fool.com TCG _______________________________________________________ Qual-common Sense on a Bumpy Day By Brian Graney (TMF Panic) January 26, 2000 So, does anyone still care about Qualcomm (Nasdaq: QCOM)? Wasn't the remarkable can't-stop-it, only-hope-to-contain-it CDMA chipmaker last year's news? Evidently not. Qualcomm posted its fiscal first quarter results last night, beating analysts' estimates by a penny with earnings of $0.25 per share, excluding one-time items and discontinued operations. However, an anticipated slow down in chip shipments in Q2 got the best of the stock today, driving the firm's share price down about 14% in early trading. Day-to-day volatility is nothing new for Qualcomm, which -- as virtually everyone from Tuscon to Timbuktu can probably tell you by now -- was an incredible 27-bagger last year. "It would be nice if we didn't have this type of volatility, but it's a fact of life and so one has to look at the longer term," Chairman and CEO Irwin Jacobs recently commented in a TV interview. With Jacobs' advice in mind, the Qualcomm story still has some strong legs under it. And judging from the numbers from the latest quarter, the volatility-inducing avalanche of media attention that is regularly heaped onto the company is probably pretty well justified. Total revenues rose 19% year-over-year to $1.12 billion, lead in part by a 140% ramp up in license, development, and royalty fees. As this revenue source carries pre-tax margins of 92%, the fee growth goes a long way in explaining why an otherwise plain-vanilla total revenue increase yielded net income and diluted earnings per share advances in the 200% neighborhood. Overall operating margins expanded to 26% from 24% in the previous quarter, showing that management is executing well on last year's promise to reduce expenses and boost margins. Back-of-the-envelope number-crunching reveals an annualized return on invested capital of 18.5%. The quarter-on-quarter chip shipment slowdown in Q2 is being blamed on seasonal factors, inventory balancing by cell phone customers, and a transition to the latest chips. The news wasn't necessarily unexpected as most analysts had factored in some occasional lumpiness into their earnings models for the company. However, that fact didn't stop a downgrade from Merrill Lynch analyst Michael Ching today, who reportedly said the company is now "fairly valued" in his eyes. Trading at 25 times invested capital and 125 times this year's expected earnings, "Fairly valued as compared to what?" is the big question. Pulling out a fair valuation argument in a hypergrowth situation like Qualcomm smacks of intellectual "brain stall" and can hardly be considered the kind of variant perception that makes or breaks long-term investing results. Instead, Qualcomm's performance in the long-run will center on the continuing buildout of wireless data services and whether the company's CDMA technologies can become an integral part of tomorrow's third generation (3G) mobile phones. Given the very fast rate of change in today's wireless industry, the company has already admitted that little will be known on this front for another two or three years. Sure, valuation will always be a concern. But analyzing the market risk is what should occupy long-term investors' minds at this point in the company's growth story. For investors with shorter time horizons, rest assured that Qualcomm's volatility will inevitably continue to be the main cause of concern -- and the main source of financial news headlines