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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Uncle Frank who wrote (52972)	11/8/2002 1:50:49 PM
From: Eric L	Read Replies (1) \| Respond to of 54805

Frank, << I noticed you signed one of your posts as eriQ last night. I take it as a sign you are please with Q's non-Gorilla performance. >> I'm very pleased as opposed to the mildly pleased that I was Q3. For the 18 months pereceeding that I had been somewhat displeased in performance relative to valuation. << Eric, if Q is a Chimp, it's certainly the biggest Chimp in the jungle. >> Market cap wise, they just may be. AAPL, the classic "Chimp", is sporting a market cap today that is ¼ that of QCOM's and at some time in this decade Qualcomm's revenues will undoubtedly surpass Apple's. Qualcomm plays in a VERY big jungle. Worst case its a $125 Billion per annum jungle. << TFM cites some examples of making good returns on a Chimp. >> It does, indeed. Ya know, (as Jacobs Jr.) would say ... when I speak of Qualcomm as the Chimp of wireless, it is important to keep in mind that they are legitimately the local gorilla of QCDMA wireless. Going back to when we started discussing Qualcomm here there were 3 competing digital technologies and one entrenched analog technology. AMPS will be virtually extinct by 2005 and PDC and IS-136 TDMA will be virtually extinct by the end of the decade. That leaves only two technologies - GSM/3GSM and QCDMA - and Qualcomm is the gorilla of one of them and will derive a high margin revenue stream from the other. In addition Qualcomm is now doing exactly what Moore (in Inside the Tornado) or his partner Paul Wieffels (in Chasm Companion) suggest a wannabe gorilla should do when the technology whose architecture they control doesn't get chosen by the majority. They are going after new market niches where they have the capability to be a gorilla. One of these niches is limited mobility WiLL and another is mobile wireless in 450 MHz. These little niches could turn out to be big niches. - EriQ -

To: Uncle Frank who wrote (52972)	11/8/2002 6:52:06 PM
From: Jacob Snyder	Read Replies (2) \| Respond to of 54805

QCOM numbers: fiscal year: GAAP EPS, pro forma EPS: 2002: 0.44, 0.98 2001:-0.73, 0.88 2000: 0.85, 1.01 In good years (2000), GAAP is fairly close to pro forma. In bad years (2001), Qualcomm's investments in speculative start-ups results in large losses, and impressive differences between GAAP and pro forma. 2002 was an in-between year. Cash flow shows the same thing: in a macro environment where weak companies are going bankrupt, Qualcomm goes cash-flow negative, as in 2001. PE: 29, using FY03 pro forma EPS guess of 1.20 (and stock price of 35) 36, using FY02 pro forma EPS (just reported) of 0.98 80, using FYO2 GAAP EPS of 0.44 58, using my FY02 GAAP guess of 0.60 Quite a spread of valuations to choose from. Notice, the valuation you decide QCOM has, doesn't depend much on whether you use forward or trailing earnings. It depends mainly on whether you think GAAP or pro forma represents reality, and whether you think the losses in Strategic Investments (which causes the lower GAAP numbers) will continue in the future. A PE of 80 is, IMO, clearly unsustainable. A PE around 30 is reasonable. I'm guessing that management's guess of $1.20 (pro forma) in 2003 is accurate, and that 2003 is like 2002, an "in-between" year, where GAAP is about half of pro forma. That is, I don't expect it to be nearly as bad as 2001, but also not nearly as good as 2000. Qualcomm still has significant equity and debt exposure to startups that could go the way of Globalstar, if the telecom sector doesn't revive in 2003. A PE of 58 is too high for me. --------------- Can someone explain to me what this statement from the 2001 annual report means: "The diluted share base for fiscal 2001 excluded the potential dilutive effect of 51,188,000 incremental shares related to outstanding stock options, calculated using the treasury stock method, due to their anti-dilutive effect as a result of the Company’s loss before accounting change." How can the effect of employee stock options be anti-dilutive? ------------- Disclosure: I am currently short QCOM at 36.