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

To: techlvr who wrote (118913)	5/17/2002 11:14:22 PM
From: Gary Ng	Read Replies (1) \| Respond to of 152472

techlvr, Re: Regardless of what % of current book value might be from stock sales, IP, or other, it is now annually generating huge sums of $ for shareholders Then being written off through its strategic investment :-)

To: techlvr who wrote (118913)	5/17/2002 11:51:33 PM
From: Stock Farmer	Read Replies (3) \| Respond to of 152472

I think the most important thing is how much current net profit Qcom is generating. This is important. So is future net profit, IMHO. Now, do you mean economic profit, or accounting profit? I assume you mean real economic profit. That is your share of value minus your share of costs. In the last six months (as of 10-Q filed Apr 24, 2002), accounting profit was 183 M$ on outstanding shares of 769,676,594 on date of filing. Or just shy of $0.25 per share. That leaves only about $32 to go in present value, or about 64 years if profit growth is equal to expected rate of return. But this is not economic profit. For in that time frame, as Art pointed out, Qualcomm issued more shares due to stock option exercise and incurred a cost to shareholders equal to the difference between fair market value and exercise price. In the quarter ending 3-31-02 share count increased approximately 5.25 Million shares, while the company raked in 52.35 M$ from issuing common shares. During this period, Qualcomm traded between $31 and $62 per share, and by eyeball guestimation we can approximate an average price would have been well north of $40. Thus shareholders were treated to dilution (loss of value) of approximately 150 M$ Which money was paid by shareholders to insider compensation. So shareholders received benefit of 180 M$ and coughed up a hidden 150 M$ for a net gain of 30 M$ On their total base of 770 M$ works out to $0.04 per share. Rounding up to the nearest cent. Which is at least in the black. But hardly an amount I would call "substantial". At this rate Qualcomm will generate the remaining $32 (or thereabouts) market value for a shareholder purchasing a slice tomorrow in about 1,600 years. That kind of real rate of return sucks. There's no other word for it. We can hope that the accounting profit grows substantially. That requires a leap of faith, and some folks have larger leapers than others. And those who would leap a gap $32 in width might find themselves falling short. Because Qualcomm has a huge overhang in outstanding unexercised options. Even if we ignore all 25 million options at strikes between $24 and $172, Qualcomm reported 82 Million other options issued with a weighted average strike price of less than $6 as of their last 10-K. That's a pending dilution of about $3/share, even if the stock price goes nowhere from here! More than I estimate they will earn by the time their key patents start to expire! Gee, that is really not in the realm of fantastic news. So I have a hard time calling the wealth being actually generating for shareholders "substantial" net profit. Profit = Income minus cost. And it's important when estimating the profit from an investment to not only factor in the profit being reported, but the costs that aren't. John.