Mike,
re: QCOM compared to what and why?
<< What other wireless companies should Qualcomm be compared to and why? The reason I ask is because I can't think of one. >>
I suppose that if one elects to hold only gorillas in his portfolio that makes sense, but if one also affords space for kings it does not. I hold both.
In addition I think it is unusual not to compare a company to its peers or other companies in its sector.
Qualcomm is a pure wireless play ...
... but so is Ericsson, the dominant market leader in infrastructure (Prince).
... and so is Nokia, the dominant market leader in infrastructure (King).
Other major companies (not pure wireless plays) that are market leaders or wannabe market leaders in wireless that derive the preponderance of their revenue from wireless include Texas Instruments and Motorola.
In addition there are a number of major companies including Intel, Cisco, Siemens, Samsung, Alcatel, Lucent et al competing for the wireless dollar.
There are any number of ways to slice and dice wireless.
I do it this way:
* Equipment Manufacturers
-- Infrastructure
-- Subscriber Equipment (Handsets, WIDS, Modem Cards, etc,)
-- Peripherals (Billing Systems, Messaging Centers, etc.
* Semiconductors
* Other
-- Enabling Technology
-- Applications Software
-- Other
I'm a sector player in the sense that I allocate portions of my portfolio to sectors (Wireless, General Networking, Storage, Semiconductors, Software), and when I do annual rebalancing of my portfolio, I evaluate (and sometimes change) the allocation I allow each sector.
Qualcomm falls into wireless of course.
When I originally invested in Qualcomm they really had to be classified as a wireless equipment manufacturer (infrastructure and handsets) even though they also derived present and future revenue from enabling technology (other) and semiconductors.
At end of 1998 I decided to keep the allocation the same in wireless and dropped Nokia (then a prince) for what I considered to be the gorilla of a segment of wireless (CDMA) and also made a risky carrier play. This decision was made after "comparing" Qualcomm to three dominant players in wireless that I either held or that were short listed on my watch list (NOK, ERICY, TXN).
At the end of 1999, the wireless portion of my portfolio had grown to well over 50% based on spectacular returns on Qualcomm, and OMPT/VSTR. I dropped the risky carrier altogether, and slashed Qualcomm in 2 steps to 20% of my port as a balancing matter, 20% being the max I will allow myself to hold in any single equity.
At the end of 2000 I evaluated wireless again and after once again "comparing" other wireless opportunities reduced Qualcomm because of some industry events that had taken place, and some trends I sensed were emerging, and started to rebuild a position in Nokia which in the interval I did not hold it, had become the king of handsets, and was in the process of becoming a strong contender for a leadership role in infrastructure, a strong number 2 to Ericsson.
Qualcomm's business model has transitioned. Using my own segmentation of wireless they fall into the "Other" category and into the "Semiconductor" category. On one side of their business they derive royalty and license revenue from the development of enabling technology, bit on the other side of the house, now that SpinCo is NoSpinCo (QCT), Qualcomm begs to be compared to the market leaders in chips (TXN, INTC, MOT, IFX, et al) since those are their fabbed competitors for dominance in WCDMA chips, while Nokia and Sony Ericcson are their competitors (or prospects) for fabless chipmaking.
Despite all this, if in real life as opposed to thread life, someone asked me what they should consider for an investment in wireless, I would tell them to do DD on Qualcomm, NOK, Ericsson, and Motorola as well as TXN, and INTC. I would of course tell them that I personally held QCOM and NOK. If I was asked why, I would tell them, and I would introduce GGaming theory to some degree, and suggest they read the manual.
When I complete my Project Hunt report on Nokia I will be making some comparisons to Ericsson and Motorola (which is strictly logical since they play in identical space) but also to Qualcomm because it competes for the wireless $ and for the wireless investment $.
Statements are often made on this board about the potential for Qualcomm to become the "Gorilla of Wireless" (a $150+ Billion industry) or the "Gorilla of 3G". Since Gorilla's are first and foremost market leaders (like Cisco in networking, INTC in chips, MSFT in OS and desktop software) comparisons need to be made to other companies (a few of whom I've mentioned) if this $3 Billion company is going to be even considered to have Gorilla status of either broad (rather than narrow) market.
On a related subject ...
We have had numerous important discussions about valuation on this board and we have many talented individuals with expertise in this are.
Fiscal year earnings and guidance for the following fiscal will be out for Qualcomm early October. When they are published I am hopeful that there will be some slicing and dicing of the valuation of Qualcomm.
I will be submitting a Project Hunt report on Nokia shortly. Nokia's fiscal numbers and forward guidance will not be available till January end. Hopefully they will also be sliced and diced relative to valuation.
I suggest that it would then be interesting to discuss relative valuation of the two companies, each of which is a market leader in wireless, but with one company promoting proprietary technology with open architecture, and the other promoting comittee-based technology with open architecture.
<< I've been sitting on the sidelines smiling as I watch the discussions about Qualcomm. >>
When I first read this I thought you were on the sidelines of a football game and I could picture you there talking on your mobile .....
<< The thing I like best about them is that everything I see discussed was brought to light here in our folder quite a long time ago. >>
The thing I like best is that they are very civil.
<< The review and continued debate is healthy and informative. >>
... that too.
- Eric - |
