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

To: quidditch who wrote (10109)	5/15/2000 11:39:00 AM
From: LBstocks	Read Replies (2) \| Respond to of 13582

From the Shy Guy: With the Fed about to meet Tuesday and the China PNTR vote coming up next week, a fair amount of handwringing and TV talking head hysteria can be expected this week. Perhaps it is a good time to step back and put the last 6 months in perspective. On December 10th, 1999 Qualcomm closed just under $98 (split adjusted), exactly where we are today. At the time that $400 price ($800 accounting for the Summer 2 for 1) represented a twenty-bagger from where the stock started the year. I remember thinking we must be starting to get ahead ourselves somewhere in here. But there wasn't much time for such thoughts as the price spike of the ensuing three weeks made mincemeat of everyone's metrics. Well, those mo-mo players have by now been pretty much flushed from the stock, and we are right where we were six months ago. What is different now is we have an additional six months of company developments. Combining these inputs with the amount of FUD, generalized fear, and the upcoming Fed action and China votes, it looks to me like we may actually once again have a situation where the corporate reality is actually ahead of the stock price, rather than vice versa. Let's consider what has happened since December: Uncertainty over the handset division is resolved and Qualcomm gets a strong new partner and ASIC customer in Kyocera. The lean and mean business model, revealing the company's underlying earnings power, is clearly laid out by management in the new proforma and segment reporting. Something overlooked by many is the still powerful operating leverage in Qualcomm's new profile. As cdma worlwide device sales ramp past 70+ million units this year, the impact will be increasingly clear. Successful negotiation of the framework agreement with Unicom ensures that Qualcomm will eventually have a large and growing source of ASIC and royalty profits that was not in anyone's model six months ago. Note that none of the analysts currently factor significant China related profits in their near-intermediate term models either. Trade politics aside, cdma is going to happen in China. Only the timing is in question. The agressive multi-branch MSM/CSM roadmap is revealed, including HDR chipsets, and the addition of Bluetooth, MP3, Position Location, and Voice Recognition capabilities. MSM/CSM5000 samples are shipped in January, with commercial quatities set for this Summer. 100% of infrastructure suppliers are signed on for the use the CSM5000 in their 1X networks. Ericsson announces it will use Qualcomm asics in its upcoming subscriber units and Qualcomm management reveals Motorola is Qualcomm's fastest growing asic customer. All litigation with Motorola is settled and MOT endorses HDR and 1X. Royalty rates on newer generation products will be full boat as opposed to its early-adopter sweetheart rate of the past. A growing list of license and royalty agreements are signed for HDR and 3G, both 1X/3X-MC and DS flavors, confirming that all licensees will have to sign new agreements in the near future and that the royalty rate is the same for all variations of mobile cdma - just like management has told us all along. Japan and Korea install IS95B with data rates of 64K. DoCoMo's i-mode takes off like a rocket but wilts under heavy loading as many would have predicted given the spectral limitation of their technology. Korean operators are the first to announce HDR field trials and will be installing commercial 1X by year-end. After a short flirtation with DS, DDI-IDO apply for 3G spectrum with plans to use cdma2000-MC. Although some seem disappointed in the announced 02 to 06 implementation schedule compared to DoCoMo's plans, they are forgetting that DDI-IDO have plenty of existing spectrum where they will be deploying the same technology [and likely doing so much sooner than DoCoMo]. It would be crazy to spend on the new spectrum buildout prior to maxing out their current system. [Think of Sprint and ATT being awarded a slug of new spectrum tomorrow. Sprint would just continue building out its current underutilized system, saving the new award for later buildout, while ATT would immediately be looking very hard at a rapid new build]. Sprint, Verizon, and Telstra have announced cdma2000 1X-mc trials for this Summer, with announced deployment plans for 2001. HDR trials will no doubt follow later this year. OmniTracs announces a push for the LTL (less than truck load) market and adds Ryder Systems as its first LTL customer. Annouces European and China entries as well. Omni's growth is now actually accelerating. Eudora announces a revised advertising supported distribution model and successfully attracts major advertisers. Announces cross selling agreement with NetZero. Qualcomm's 'Make Data Happen' imperative is now in the news daily and its emerging strategy is rapidly coming to light with each 'third leg' acquisiton, joint venture, partnering and investment. I've probably left out a lot, but the above seems like plenty of new information and clarity for a short period like six months. No matter what Greenspan does tomorrow or what Congress does next week, I am certain that 6 months from now I will be able to make a similar list of the underlying corporate reality that has yet to be revealed. These are the things that drive Qualcomm's value as a business. For those with doubts, I would ask that you play with the numbers implied by a market for cdma subscriber devices of 300 to 500 million units per year, because that is where we are headed over a reasonable investing timeframe. Penetration rates are going to be much higher in a data-enabled world than any analyst's model now contemplates. 1X deployment and subsequent imrovements are going to lead to rapid replacement rates for handsets. Whole new multi-million unit markets, from wireless modem cards to automobile telematics to application specific subscriber units, will be coming out over the next few years. Yes, we can get there sooner if Unicom annouces $5 Billion of infrastructure contract awards next month, but that is not a necessary condition for reaching the final destination. The British spectrum auction confirms that wireless data use is going to be a very, very large market. It is going to be a cdma market. It is still very early in the game. The Shy Guy