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

To: Wyätt Gwyön who wrote (111886)	1/30/2002 9:22:32 AM
From: Jordan Levitt	Read Replies (1) \| Respond to of 152472

<<MSFT, for instance, only has operating margins of about 40%. QCOM may have a great business model, but it ain't no Microsoft. i would consider 30% margins to be an excellent figure to shoot for>> Whether or not QCOM "ain't no Microsoft" can be debated, for we will not resolve this part of the debate until one of us is proven wrong. As for the potential operating margins, QTL runs currently at over 90%. If one believes that this will be the predominant source of revenue for QCOM, then quite high operating margins are likely. Remember, MSFT has a unit cost (albeit a fairly low one), where royalty revenue does not.

To: Wyätt Gwyön who wrote (111886)	1/30/2002 2:22:37 PM
From: pyslent	Read Replies (2) \| Respond to of 152472

"so if i assume 40% CAGR for years 1-4 and 20% CAGR for years 5-10, with an expected return of 13%, then i calculate NPV at around $35. if expected return is lowered to 11% in this scenario, then i calculate QCOM is at NPV now." Mucho, I have to say that I'm not familiar with your valuation model. But if it calculates expected return to be only 11% given those world-beating growth figures, I can't help but be a little skeptical. As I mentioned, 40% CAGR over 4 years gives QCOM an eps of $5. I don't see how a company pulling down 5B in profits be worth any less than $100B total market cap. Especially if you allow it to continue growing at 20%. So at the minimum, its worth 100/sh in 2006, with 6 more years of 20% growth ahead of it. To get to 100/sh in 4 years requires 20% capital appreciation annually. At that point, the company would sport a reasonable pe of 20 (presumeably able to give out the dividends that you request <g>), so the stock will appreciate at the same rate as earnings growth... 20% for the next six years (assuming your scenario). How does that translate to 11% from these levels? The way I see it, 20% over 4 years + 20% over 6 years averages to 20% over ten years. This scenario allows for eps of $16.50 in year 10, but your model predicts a stock price of $130 (11% over 10 years from $43). Is it reasonable to assume a pe of less than 10? or does your model account for other factors, such as inflation? I've always just ignored inflation because earnings should inflate at the same rate, so all our calculations are based on the same present-value-of-money. But there must be something that explains why your model and my calculations don't agree if we have the inputs... Anyway, I will say that although most QCOM investors see it as inevitable for CDMA unit sales to reach 100% market share eventually, the timeframe for this happening is looking more and more hazy (Damn the WCDMA delays). As the 5 eps target moves farther and farther into the horizon, NPV should drop correspondingly. Hence the drop from 200 to 40. The market is more efficient that we (at SI) give it credit for :). Part of the drop in price was the bubble popping, but part of it is QCOM execution... the stock would never have gotten as high as it did if mgmt came out and said that it would take until 2008 for "the whole world to go CDMA." Everyone expected and still expects it to happen sooner than that. Incidentally, I cringe everytime I see a QCOM investor display glee <g> on yet another WCDMA delay. If a QCOM investor really doesn't think WCDMA will take off, he should sell his shares. That is, unless anyone actually believes that CDMA2000 will do the same thing (take over 100% market share of all cell phones). If WCDMA never takes off, I see the wireless world at 50% GSM (legacy 2G just for voice), 50% CDMA2000, until 4G. That kills the expected return on our QCOM investment.