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

To: Art Bechhoefer who wrote (113138)	2/13/2002 9:30:18 AM
From: Jeff Vayda	Respond to of 152472

Qualcomm and Verisign draw more heat money.cnn.com February 12, 2002: 4:56 p.m. ET Two long-time targets of short sellers fight off accusations of accounting shenanigans. By David Futrelle NEW YORK (CNN/Money) - In this market, almost nothing is scarier than a sudden whiff of uncertainty. Consider, for example, the recent wild gyrations in shares of one-time tech favorites Qualcomm and Verisign. Qualcomm (QCOM: down $0.78 to $40.50, Research, Estimates) shares plummeted early on last Friday after the Center for Financial Reporting and Analysis (CFRA), a self-proclaimed watchdog of "financial shenanigans," issued a negative report. The stock quickly rebounded after analysts rushed to the stock's de fense. Morgan Stanley denounced the CFRA's "witch hunt." And Gerard Klauer Mattison analyst John Bucher upped his rating on the stock, attributing the plunge to "visions of 'Enron-itis' running through the minds of investors and short sellers." Security software and domain registrar Verisign (VRSN: up $0.63 to $26.31, Research, Estimates) went on a roller coaster ride of its own last week as worries spread about dark surprises hiding in its books. Analysts rushed to its defense as well. "Nothing is likely to emerge from the dark to haunt the stock," Bear Stearns analyst Chris Kwak assured investors. Nothing new Talk of "Enron-itis" aside, both stocks have long been haunted by accounting worries. Qualcomm, a former high flyer that racked up a legendary 2,600 percent return in 1999, has been widely derided for its convoluted financial statements and its liberal use of "pro forma" reporting. It nevertheless has a cult following of fanatical fans convinced that the company's licensing fees from technology for transmitting wireless calls will lead to a windfall. The worries raised by the CFRA last week, to be sure, weren't exactly earth-shattering -- the most serious one being that Qualcomm had allowed some companies to pay for licenses with equity instead of cash. Qualcomm noted that the amounts involved were small -- a few million bucks out of total revenues of $2.7 billion in 2001 -- and that the transactions had been disclosed in a company 10-K. Still, Qualcomm stock is fairly richly priced, given the company's less-than-phenomenal growth prospects. And with the company's financial reporting something less than perfectly clear -- the last time I slogged through a Qualcomm earnings report it quite literally gave me a migraine -- it's a safe bet that the company, fairly or unfairly, will be dogged by accounting questions for some time. Verisign, a provider of Internet security software and leading registrar of domain names, has also been a favorite target for short-sellers. Shorts essentially worry that the company may be resorting to dubious accounting in order to pump up sales as the registration business stagnates. Indeed, last spring, (in)famous short seller Manuel Asensio launched a campaign to expose what he called Verisign's "questionable earnings, unrealistic forecasts and...extremely excessive stock price." Last week, Verisign was dogged by accusations that it was driving its sales by investing money in affiliates who would turn around and spend this money on Verisign products -- essentially transferring the money from one pocket to another and calling it revenue. It's a legitimate worry: bankrupt Belgian speech recognition software company Lernout & Hauspie reportedly used a similar strategy to conjure hundreds of millions of dollars in sales out of thin air. But the companies pumping up Lernout & Hauspie's sales were fraudulent shells. That's not the case with Verisign's affiliates. Still, any time a company bankrolls customers in this way it raises questions -- you may recall how too-liberal "vendor financing" came back to bite telecom firms like Lucent and Cisco. Both Qualcomm and Verisign have recovered relatively quickly from their recent bouts of Enron-itis. But neither company has even come close to putting investors' concerns fully to rest. Shareholders should brace for a bumpy ride.

To: Art Bechhoefer who wrote (113138)	2/13/2002 9:32:53 AM
From: Jordan Levitt	Read Replies (2) \| Respond to of 152472

Art, <<So, even though skills enable one to do better than the market for awhile, it is only a matter of time until the rest of the market players find out, and market inefficiency evaporates. >> This thought would seem to be particularly true about quantitative models and particular TA measures. One area where returns seem to act differently is in small cap value. My own theory as to why, is that it is the hardest area to invest in, in that to find good small companies requires a great deal of work, and few are willing to do that sort of diligence. I think it is also due to the limitations (in terms of size) that the large funds and institutions face. These small and micro cap companies can't have the efficiency thrust upon their share price as quickly as the larger issues as most of the "big money" cannot buy these issues. Further, small companies are not as easily constrained by the law of large numbers. Jordan

To: Art Bechhoefer who wrote (113138)	2/13/2002 9:33:59 AM
From: Wyätt Gwyön	Read Replies (3) \| Respond to of 152472

Art, think about it this way. the main determinant in an investor's performance is the asset class they are invested in. we know from history that asset classes come and go (in terms of performance). so somebody who is just in one asset class is going to outperform some of the time, and underperform some of the time. i.e., somebody does great in large-cap tech one year, then horrible another year. same could be said for gold, real estate, etc. so somebody who is statistically "skillful"--i.e., can consistently outperform the market the way good baseball hitters can consistently have above-average batting averages year after year--is going to have to hop from one asset class to the next. this implies one must be an expert in "market timing". there is no statistical evidence anybody can do this CONSISTENTLY, but in any case, market timing among asset classes is a different strategy from the "know-one (or a few)-stock(s)-real-well" approach you seem to be advocating. because obviously if you do well in QCOM in 99 because your deep knowledge of it in 98 caused you to overweight it (thereby exploiting an inefficiency), you would need to dump that strategy in 2000, 2001, and (so far) 2002 for some totally unrelated strategy, such as shorting the market, investing in value, gold, REITS, etc. and then next year you would perhaps need yet another strategy, and so on. which means you need a meta-strategy that perfectly allows you to switch between module-strategies (i.e., time the market). this is the kind of thing i say doesn't exist.