Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Stock Farmer who wrote (47916)	10/15/2001 4:19:11 PM
From: Thomas Mercer-Hursh	Read Replies (2) \| Respond to of 54805

in this case, it is more like a soup-kitchen where someone wanders in hungry from the street and refuses serving after serving until such time as he sees a properly filled out health inspection sheet. And I should keep going back to the same soup kitchen day after day without ever checking it out? Message #47916 from John Shannon at Oct 15, 2001 3:57 PM Thomas - my concern is that one requires a method to value gorillas. Having none just will not do. Your analogy of someone walking into a store is not quite correct. For in that situation, one is exchanging value (money) for the goods and the various merchants might indeed wish to compete for the business. However, in this case, it is more like a soup-kitchen where someone wanders in hungry from the street and refuses serving after serving until such time as he sees a properly filled out health inspection sheet. Feel free to go hungry. This is not to say that one is perfect and the others are busted. Just that having none at all just won't do. Not an area where we have a disagreement. One should not expect a company to be worth more than what it will generate I think that there are several different aspects to this question. One is what is the basis of the metric one will use. By this statement you are pointing at a family of metrics. Which one should we pick and why? Another is what do we do with this metric once we obtain it? Is it merely a rude screen that keeps us from doing something way out of line or does it provide some kind of buy and sell signals? How do we arrive at the values of those signals? What kind of confidence should we have in them? Are there other factors we should consider in combination with these signals? And another is how well does this model relate to the real source of value for an investor, i.e., share price? Are there secular trends in share price in relation to this metric which might suggest different standards in the future? How decoupled is the market from this underlying reason and for how long? For example, anyone recommending we buy QCOM at $50 is automatically implying that they think the economic value that will be generated by the company will be at least 35 B$ in constant dollars. Actually, I would think that most people, not necessarily those in this forum, who are making such a prediction are implying that they think the share price will be higher in the future, not necessarily long term and not necessarily with any good basis. How well does share price tie into your preferred metric over time? How extended are the periods where the two are out of whack?

To: Stock Farmer who wrote (47916)	10/15/2001 4:58:20 PM
From: techreports	Read Replies (1) \| Respond to of 54805

I suggest it will be more fruitful to test the basis of this belief rather than test for silver-bullet type one-size-fits-all valuation tools. You might be amazed what gets stirred up when you ask the question "why do you think Qualcomm will generate more than 35 B$ worth of profit". hmm...GE isn't going to generate more than 386B$ worth of profit any time soon. Here's a article on Qualcomm. forbes.com Still beloved by investors, Qualcomm doesn't find growth getting any easier. Qualcomm chairman Irwin Jacobs has a problem. His company is riding high even in the continuing tech-stock carnage, trading at a lofty 43 times earnings despite taking a sharp dive in the past year. That owes largely to Qualcomm's extensive and pricey portfolio of patents on a wireless-transmission scheme known as CDMA (code division multiple access). Analysts estimate the firm collects a 4% royalty on the cost of a cell phone, reaping profits on a big share of the 400 million cell phones sold every year. The royalties provided about 30% of the company's estimated $2.7 billion in revenue for the fiscal year ended Sept. 30 and explain why the company is immensely profitable, with an estimated $850 million net. But to keep this stock aloft, Qualcomm has to do more than just sit back and collect patent fees. Toward that end Jacobs has high hopes for Qualcomm's chip business, which contributed perhaps $1.5 billion of revenue in the just-completed year, says Morgan Stanley analyst Louis Gerhardy, and has the potential to do a lot more than that. (Qualcomm designs the chips it sells but has the manufacturing done by others.) In order to expand as a chip vendor Qualcomm will have to get a nice piece of a new market:selling chips for Wideband CDMA phones. The WCDMA format is another version of CDMA that was developed by a phone industry consortium. Fans of WCDMA predict that it will eventually be adopted by 75% of the world's wireless carriers. European wireless carriers, in particular, have been quick to embrace the W. In selling to them, it doesn't help that as recently as March Qualcomm was badmouthing WCDMA's performance while playing up its own spruced-up version of CDMA called CDMA2000. It shouldn't matter since Qualcomm collects the same royalty on both. The CDMA2000 format boasts impressive speeds in transmitting data, which will be important as customers start expecting weather maps and restaurant menus on their wireless phones. But there is more than technical prowess that determines the design of a phone system. Practical and political considerations come into play. Many carriers that plan to upgrade their systems to carry data, especially those in Europe, are installing intermediate technologies, such as General Packet Radio Service, that avoid Qualcomm patents. When they move on from GPRS they are inclined to go to WCDMA. Here's what Cahners In-Stat Group forecasts for worldwide sales of wireless handset chips in the year 2005: $2.5 billion for WCDMA, $20 billion for GPRS and $10 billion for CDMA2000. If Qualcomm wants a big piece of the action it needs to sell chips for all kinds of formats, and that's just what it is doing. This month the chip division shipped out samples of a line of WCDMA chips.It has already persuaded Samsung and Sanyo to design phones built around the Qualcomm WCDMA chip set. "Penetrating European manufacturers would be the ultimate step," says Anthony Thornley, Qualcomm's chief operating officer. What's standing in his way? Qualcomm has alienated carriers with its royalty demands; that's one reason they rather like the idea of using GPRS even though it doesn't have the best data rates. "[Qualcomm seems] to err on the side of, ‘Let's charge significantly for the licenses, and less on the notion of trying to plaster the world with phones based on Qualcomm intellectual property,'" says Ivo Rutten, a vice president of Philips Semiconductors. Philips recently sold off the design unit for CDMA2000 and refocused on WCDMA. Qualcomm's chip division has a lock on the market for its own CDMA2000 technology. It is used by companies including Verizon Wireless, Sprint, Nextel and a couple of Korean carriers. In the other formats, though, Qualcomm will have to take on rivals such as Texas Instruments. There's a lot of money to be made here, but Qualcomm won't find the pickings easy. If you are not a member, go here: forbes.com

To: Stock Farmer who wrote (47916)	10/15/2001 6:47:54 PM
From: EnricoPalazzo	Read Replies (3) \| Respond to of 54805

For example, anyone recommending we buy QCOM at $50 is automatically implying that they think the economic value that will be generated by the company will be at least 35 B$ in constant dollars. I suggest it will be more fruitful to test the basis of this belief rather than test for silver-bullet type one-size-fits-all valuation tools. You might be amazed what gets stirred up when you ask the question "why do you think Qualcomm will generate more than 35 B$ worth of profit". I know this discussion always ends up revealing more about the authors' moods toward the market than about the soundness of any theory, but I think I'd agree with what you just wrote, John. Like most people of the ill-fated GK class of 2000, I haven't much faith left in my stock-picking abilities. So perhaps it's just pessimism what i say this: I for one don't see any Gorillas out there with great prospects, reasonable valuation, and a low chance of failure. I certainly believe that Microsoft, for instance, has a strong future ahead of it, i.e. low chance of failure, but while .NET could prove extremely lucrative, it's unripe for serious individual investment at this stage. Besides, my financial future is substantially pegged to the stock anyway, so that's ruled out. EBay, which is appealing in ways reminiscent of Gorillas, stands a very high chance of continuing to grow cash flow rapidly, but the P/E is just very high (~ 200). I haven't checked out the P/CF. I do in fact have money in SEBL & QCOM (also a share in BRCD, but that's really just to remind me to watch out). But that's really more a matter of my temperament (unwillingness to sit out the market) than of any real certainty about the prospects of these two companies. From a broad perspective, I'm really uncertain whether and how 3G will be used by the masses. I can't be sure, but I don't think i would have been so cautious about, say, the PC in the late 1980's. I'm very concerned about the mortality of patents, as this exacerbates the downside when markets are slow to develop.