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

To: Rocket Scientist who wrote (116101)	3/27/2002 8:04:41 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 152472

do you mean NPV of the forecasted earnings stream? yes If I understand your scenarios correctly, NPV of Case 1 (13% discount rate, eps growth 30%X5yrs+15%X5yrs+6%X20yrs) is about 43$, if we start at 1$/share earnings in the first year well, i am starting with 90 cents, fwiw. that can be changed easily. more importantly, another factor in my calculations is dilution due to options issuance, which i estimate (i believe conservatively) at 3% per year. so you would need to dilute the NPV by that figure each year (i.e., the share base grows by 3% per year in this scenario). But this does not take into account any perpetuity factor for the company actually, considering the short half life of most technology, i think it is exceedingly generous to run the figure out to 30 years in the first place. especially in the case of QCOM, which is, in my opinion, in a position similar to a drug company with a blockbuster drug. the patents for QCOM have a finite life considerably less than 30 years. since the broad bulk of QCOM's future anticipated profits are to come from licenses and royalties which are dependent, ultimately, on these finite-life patents, i think it is not unreasonable to assign them a finite time value. if i wanted to be a little more cynical, i would have used a 15-yr period instead of 30 years. in 20 years, i personally think QCOM will not be anywhere near its present catbird seat vis-a-vis royalties. so my guess is that sometime down the road, be it 10 years or 15, QCOM will be like the drug company whose "blockbuster" went generic. bulls will counter that in the meantime, all the geniuses at QCOM will invent new patents and they will live happily ever after. but there is a little problem with this scenario: as Bill Joy of Sun is fond of saying, most of the smart people do not work for your company. QCOM did something exceedingly rare in getting what are called monopoly rents on CDMA. the other companies were asleep at the wheel and let this happen. as a result, QCOM had a windfall in finding monopoly rents where others weren't looking. similarly, QCOM investors had a windfall when this situation became widely noted in 1999. however, that was then; this is now. going forward, all companies in the wireless business will search for monopoly rents in CDMA, and like as not, the accrued value of future IPR will be equal to the cost of capital for R&D. no more windfalls can be counted on. another reason not to discount out to perpetuity is that it ignores the time value of money. the more years before a dollar is received, the lower its present value. hence the discounting mechanism. all the above JMHO, and i could be wrong.