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

To: engineer who wrote (21995)	4/29/2002 11:22:22 PM
From: slacker711	Respond to of 197146

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. Why would they need retained cash to fund R&D? They are cash-flow positive....the excess cash seems to mostly be used for funding CDMA installations around the world. This might be a good use....but I think it is debatable. I would never argue against cash being used for R&D. Personally, I rarely ever look at the expense side of Q's business. If Schrock says he needs the cash for R&D, it is hard for me to argue. 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. It will be interesting to see what type of ASP's W-CDMA ASIC's will have. I would expect that these are likely to be significantly higher than 1x. Another factor that should help ASP's over the next couple of years is the move towards separate baseband and applications processors....at least that is what is happening in the W-CDMA world. Slacker

To: engineer who wrote (21995)	4/30/2002 1:17:38 PM
From: David E. Taylor	Read Replies (2) \| Respond to of 197146

engineer: Thanks for the helpful comments. Here's my original data table with one extra column - the net pre-tax margin on QCT revenues; and one extra row in front - the Q1 01 data when no 1x chips were shipped: Q FY CSM 95A/B 1X QCT Revs Blended Pre-Tax ASP Margin Q1 01 N/R 15.0 0.0 $330.054 $22.00 25% (0) Q2 01 1.0 15.0 1.0 $363.741 $22.73 23% (1) Q3 01 3.0 12.0 2.0 $333.115 $23.79 21% (2) Q4 01 4.0 9.0 4.0 $336.881 $25.91 20% (3) Q1 02 1.0 9.0 6.0 $359.144 $23.94 24% (4) Q2 02 2.5 6.0 8.0 $343.815 $24.56 23% (5) So while the margin has picked up from the low of Q4 01, it was quite a bit lower than I had been projecting, even though I was allowing for the high level of R&D spending needed to get the MSM5xxx and MSM6xxx designs completed and into sampling/production. The sluggish margin increase, plus the apparent decline in ASP's, was what led me to dig in to try and understand what was behind these trends. I agree that ASP's are bound to decline over time for older products, but it appeared to me that the MSM3xxx ASP's had stabilized in the $22 range, and so it was a surprise to get the result that QCOM is now off loading these chipsets at around $11, half the price of six months ago. As I said, it's a bit tough on Nokia and other competitors, but it's also clear (more so now since the discussion my post promoted) that this is a deliberate move on QCOM's part to transition to higher ASP (and presumably higher margin as production ramps up) chipsets. As for chipset volumes, well they haven't budged much over the past six Q's, as the data above so clearly show. The Verizon/Sprint transition in the US and KDDI in Japan to 1x may push volumes up some in the second half of this year, but we also need significant CDMA sub growth to get volumes moving up. Despite the fact that we added around 30 million CDMA subs worldwide in 2000 and also around 30 million in 2001 (per CDG and other data), there hasn't been a corresponding increase in CDMA handset sales (around 67 million in 2000, around 72 million in 2001), which QCOM now predicts will be up only marginally in 2002 (80-85 million) from last year. Based on my own (incomplete) analysis of the data, there appears to have been a drop off in the "replacement" handset sales, possibly due partly to the economic slowdown and partly due to US users holding off replacing until 1x handsets are widely available. So, a lot depends on organic CDMA sub growth in China, maybe India next year, LA, other SE Asian countries, and possibly Eastern Europe, and then the long awaited growth from WCDMA roll out in GSM land, which won't really pick up until 2004/5, if we are to believe what we read. David T.