From today's LA Times:
latimes.com
Qualcomm Looking Up; Six Flags at a Bargain
Stock Exchange lets readers listen in as Times staff writers James Peltz and Michael Hiltzik debate merits of individual stocks.
By JAMES PELTZ, MICHAEL HILTZIK
Qualcomm (QCOM)
Jim: Buy
Mike: Buy
* * *
Mike: The stock of this San Diego-based telecommunications company rose so far so fast last year, Jim, that it seems BMWs and Jaguars were sprouting on the streets of San Diego like dandelions on a sump.
Jim: Qualcomm's stock performance was even eclipsing Broadcom's, which tells you something.
Mike: I only hope that all those Qualcomm investors who bought those cars paid cash--and took some profits in their shares awhile ago--because this year the word on Qualcomm has been "look out below."
Jim: It's been ugly ever since the first week of January.
Mike: Yep. The stock has lost nearly 70% of its value year-to-date, after soaring 26-fold in 1999.
Jim: Qualcomm split the stock 4 for 1 in December. And Jan. 3, the post-split stock hit a record $200 a share. Today, the price is in the high $50s. But before we go any further, let's talk about what Qualcomm does.
Mike: Is that where I come in?
Jim: You have the floor.
Mike: All right. Qualcomm is the developer of a wireless phone technology known as CDMA, for code division multiple access. This is one of several ways to slice up phone transmissions digitally so that you can pack more into a single stream.
Jim: Meaning?
Mike: It increases the capacity, and to a certain extent, the clarity of your wireless phone. Carriers not only can handle more calls, but can also offer their users a lot more on their phones than a voice at the other end. Like Web pages, for instance.
However, there are competing technologies, including one used in Europe known as global system for mobile communications, or GSM.
Jim: But many analysts believe Qualcomm's CDMA will be the standard for wireless phones going forward. And that's important because Qualcomm not only has been making the CDMA-based chips that go into the phones . . .
Mike: Let me correct you a bit. Qualcomm is what is known as a "fabless" chip company, meaning it does not manufacture, or fabricate, its own chips. Qualcomm develops the chips, but it outsources their production.
That said, it's the largest fabless chip company in the world. And as you say, there is an argument that CDMA is the technology best suited for new applications on mobile phones.
Jim: There's one other key point about Qualcomm: It holds a ton of patents on CDMA technology. So even if its customers buy CDMA chips from another company, Qualcomm gets a piece of the action because it gets licensing fees for its patents.
Mike: Correct. Now, if CDMA technology expands as many expect it will--even into Europe, where it may be paired with GSM--Qualcomm will be a major beneficiary. It's certainly the horse to ride in the CDMA race.
Jim: Which begs the question: Why has the stock gotten hammered? There are several reasons. First, the stock was so hyped and overpriced that any bad news was bound to send it into a tailspin.
Mike: And the bad news arrived right on time.
Jim: Sure did. It got hit with sales setbacks this year in two major Asian markets, South Korea and China.
Mike: Chinese telecom firm China Unicom, which is a government company, was going to use CDMA and buy its equipment from Qualcomm, but it put off that decision. To be fair, the market assumes that China will eventually come back.
Jim: To make things even more complicated, Qualcomm now is going through a major restructuring of its own. First of all, it used to make cell phones itself, but it agreed to sell that business to Kyocera of Japan.
Qualcomm also recently said it will shed its chip business, which as we noted is basically developing chips for others to produce.
Mike: Yeah, the company now is going to spin off its chip-selling operations while retaining its chip licensing, meaning the royalties it is paid for its patents. Qualcomm initially is going to spin off less than 10% of the chip business to the public; Qualcomm stockholders will eventually get the other 90% of this new company.
Jim: So, we've drawn the big picture . . .
Mike: And now let's connect the dots?
Jim: Right. I like this stock. Do you?
Mike: Yes. Qualcomm's positives outweigh its negatives, which I think are all mostly temporary.
Jim: And meanwhile, the negatives are already built into Qualcomm's battered price. Now, the stock is still selling for nearly 60 times the company's expected earnings per share this year, but . . .
Mike: That's not exactly building in a lot of negatives.
Jim: I think it is. Any stock that goes from $200 to $55 or $60 has built in a lot of negatives. Actually, I wish the price were lower. But even so, I like Qualcomm's prospects. I agree its problems are short term, I believe CDMA will be the leading technology for wireless phones, and I see Qualcomm's restructuring moves as a bonus.
Simply put, this company, whose sales will top $3 billion this year, has a solid long-term future.
Mike: Agreed. The stock market today has a completely different mind-set from 1999, when people would bid up anything just based on potential. I think this stock has been beaten down to the point where it's a smart move to load up.
|
