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Technology Stocks : Qualcomm Moderated Thread - please read rules before posting -- Ignore unavailable to you. Want to Upgrade?

To: David E. Taylor who wrote (21960)	4/29/2002 4:14:49 PM
From: SKIP PAUL	Read Replies (1) \| Respond to of 197208

In one of the CC's Thornley had mentioned that they give quantity discounts. That could be what you are misssing.

To: David E. Taylor who wrote (21960)	4/29/2002 4:26:44 PM
From: Jeff Vayda	Read Replies (1) \| Respond to of 197208

David: quite the study. Good job. But I might offer that all of your positions might be correct - just in varying amounts to make up the whole. In a down telecom market - where everyone is hurting - I can see the business sense in discounting both. You want to clear out the old inventory to those who are interested in the best deal. No doubt there are bottom fishers in the handset industry. Then there is a case for wetting the appetite of those who are interested in producing the latest and greatest but would be hesitant at this point to make a purchase. It is market (supply/demand) driven. IMO, both cases are possible. In addition to this point in the technology cycle, where you have the above both effects, you have to add in the downward market forces which keeping the customer on the sideline, putting more pressure on the system. As we have seen in the share price, not a nice place to be if you are long. Jeff Vayda

To: David E. Taylor who wrote (21960)	4/29/2002 5:07:42 PM
From: carranza2	Read Replies (1) \| Respond to of 197208

Could it be that the Chinese are buying IS 95 A/B chips in substantial quantity and getting discounts? I can't imagine that the 1X chips are getting discounted at the beginning of the product cycle. The DO chips are probably going to command a premium over $35, and lots of them are going to be sold this quarter, so I wouldn't be too concerned. Your conclusion seems reasonable: Easy to figure (1) - if this was the cause of the lower revenues, 95A/B chips are now being sold for $10.93, while the mean ASP for the 1x's is still $34.78. Call it $11 and $35 respectively. That's around a 50% discount on 95A/B chips over the last two Q?s. Is this it? QCOM is stuck with some inventory of the MSM 3xxx's that they are dumping off so as to switch over to the 1x and 1xEV-DO MSM 5xxx's as quickly as possible? If so, even tougher on Nokia! I also wonder which customers are still buying IS 95A/B MSM-3xxx's? I don't believe they support the R-UIM's that are needed in China, so they must be going into other end markets that don't need 1x, or which need a "cheap" basic CDMA chip. I do recall reading some comments somewhere recently that QCOM expected to be shipping 100% 1x by the end of 2002. Like you, I would not be happy if Q was discounting the high end chips as well as the CDMAOne chips, but I can't imagine any circumstances under which that would be the case. Can you? The only reason for doing so would be to impose market discipline (punish competitors) but it doesn't have anyone to worry about in the 1x or DO markets. It's strictly a "charge what the market will bear" situation. Did Nokia all of a sudden start developing competitive 1X or DO chips? I don't think so.... Great analysis and great post, by the way. Thanks for taking the time and effort to produce it.

To: David E. Taylor who wrote (21960)	4/29/2002 9:59:30 PM
From: engineer	Read Replies (2) \| Respond to of 197208

It is highly normal that the ASPs should decline overall for the ASICs FOR A SPECIFIC PRODUCT LINE. but the good item which shows up in your work is that the ASP has gone back up due to new product introduction and new functionality. As the volume goes up in any one product, the vendor expects and gets volume price discounts. But at the same time, the buyer of silicon gets much the same volume price discounts, so even if the ASP goes down, the margin may well go up from simply volume discounts as well as from seondary cost savings, such as amotization of test equipment, amortization of labor to produce the chip, better streamlined proceedures for manufacturing, etc.. I would suspect also that the total overall margins for silicon got even better, as the chip sector has been in a long slump and I would expect that Qualcomm has gone out and renegotiated all their long term silicon contracts to take advantage of multi-year higher volume commitments with their vendors. It would show great management if they had gone out now and locked into pricing for 3-4 years out. It is a good sign that the ASP jumped back up as the 1x volume went back up and I expect that it will jump once again when the newer ZIF chips get out there. This is exactly what you would expect. If you doubt it, check out the ASPs of Intel over time. Almost exactly the same. It is no wonder they introduce a new Pentium chip every 4 months, and restep the old ones about every 9 months. This is why the retained cash is so very important for Qualcomm as it funds more R&D to come up with new innovations to regain the ASP price. Wihtout it, the average chip price would go down and after a long time, the total return on chips would be alot lower. This is also why I was so adamant a couple of months ago about the people who wanted all that free cash turned out to investors. By using it to fund deeper research and to fund more vendors for silicon, they can drive the buying price lower and grow margins faster. they can also do cost savings chips which are done solely to reduce the die size and thus the cost of the silicon. I think a much better way to look at it is volume and margins combined. ASPs mean almost nothing in the long run as long as your cost goes down commensurate and the volume goes alot higher. Look at someone like National Semiconductor. they sell a ton of OP-AMPS at $0.15, but they only cost them $0.015 cents. they also sell lots of very low cost components, but they sell ALOT of them. As for the CSM, it may be that they went from a 4 channel chip to a 32 channel chip and the actual cost of the chip was not that much higher. this would reduce the number of chips sold (not the number of CDMA call channels sold) and not increase the revenue much. but the CSM chip is like 1/100th the amount of hte MSM chip for new installtions and probably more like 1/500th or 1/1000 for long term fixed systems which have handset replacements going on year after year. Lots of factors here and I have not seen the data. but I would tend to focus on the MSM chipset sales and pricing for the bulk of the business case your making. Hope this is helpful.

To: David E. Taylor who wrote (21960)	4/29/2002 11:27:33 PM
From: H. Bradley Toland, Jr.	Respond to of 197208

Thanks David Taylor, engineer, and S100. First, while I don't check here frequently, I too appreciated S100's comments and I hope his family and friends find comfort from the way he no doubt enriched their lives. Good stuff David--kind of you to put it up. It's a nit really, but even though the CSM's are not material I have to believe that they make up 3% to 5% of sales for a quarter. Though this has no bearing on your analysis I feel compelled to mention it. Mr. engineer's point about asp's and margins is also an excellent observation. If your ASP's are eroding but your incremental cost of another unit is tiny then your total gross margin may still climb nicely. This leads to my main question, which is, since QCOM is a "fabless" producer do you think their contracts with the manufacturers follow the cost curves of a manufacturer or do you think the costs to QCOM are more rigid as volumes go up? My guess is that they follow somewhat, but are less sensitive to volume than the owner of the fab. Any opinions would be appreciated. Finally, my belief (and hope!) is that the 95A/B stuff is where pricing is coming down fast. If, as David mentioned, QCOM's goal is for every phone on the shelf in the U.S. (and worldwide?) in 2003 is to be 1x, then they need to push the old designs out the door pretty fast while scaling up 1x mfg. quickly as well.

To: David E. Taylor who wrote (21960)	5/1/2002 1:41:48 AM
From: brational	Read Replies (2) \| Respond to of 197208

In the excellent analysis of chipset ASP's presented by David, there is one additional possibility that comes to mind, other than the two mentioned: So, a couple of possibilities again. Either: (1) QCOM had cut the ASP for 95A/B chips even further; or (2) QCOM was also now discounting the 1x chips. I am not an accountant and I'm not sure how chipset revenues should be booked. However, it occurs to me that the revenues reported in a given quarter might not necessarily correspond to the chipsets that were shipped in that same quarter. Typically, the buyer receives an invoice with their shipment, and has some time (ranging from several weeks to a couple of months) to make the payment. For instance, the consolidated balance sheet at the end of the earnings report (http://www.qualcomm.com/press/PDF/Q202er.pdf) shows net accounts receivable in the amount of $452,145. Wouldn't this amount include invoices still due to QCT for chipsets shipped during this past quarter? This would naturally affect the calculations shown, and the conclusions drawn about the respective ASP's for the diferent chipsets. So the $343,815 reported this past quarter may include an amount corresponding to some chipsets shown as sold in the preceding quarter, in addition to only a fraction of what was reported shipped in the last quarter. One could make an assumption of an average invoice payment time of say about a month, in which case only 2/3 rds of the chipsets shipped this past quarter would have been booked with the quarterly revenues, with the remaining amount to be paid now included in accounts receivable. Similarly, one third of the preceding quarter's chipsets would show revenues in the last numbers. I have not tested this hypothesis. I hope others have more information about how revenues get booked relative to when chips get shipped. BR