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

To: H. Bradley Toland, Jr. who wrote (125896)	12/6/2002 12:54:14 PM
From: Stock Farmer	Read Replies (2) \| Respond to of 152472

Hey John, let me put you out of your misery. Just tell me where you think Qualcomm should trade if they generate 6 billion in free cash flow per year, a number I think they will attain in 2006-08 time frame. You don't get it, do you. I just did!!!! Indeed, the model I'm using to suggest Qualcomm is overpriced shows 5.8 Billions discounted free cash flow by 2008. That figures handset growth in the 50% per year range and extrapolated a 1 billion CDMA handset volume as the asymptotic limit (that's churn on 3 billion, on which there's not much room for growth). I figured that would be an asymptotic volume and generously extrapolated that out to 2023. I also assumed a gradual erosion in ASP of 5% p/a and that licensing revenue as a percent of ASP would not decline, and that management would cease any sort of cash mis-management entirely and would attain perfect cash retention capability. By corollary, these assumptions also include that Qualcomm's grip on whatever comes after CDMA in this same interval will be as tight as it is on CDMA today. I think you will appreciate these are generous assumptions, and I don't really have a great deal of faith in things working out this way. But folks on this thread do, so that's what I use in my modelling. Then it's just a matter of discounting those cash flows by 11% p/a which is the average long term rate of return for equity investments. Take the sum. Add on the current cash and cash equivalents and divide by the shares outstanding (diluted by 4% per year) to get a fair value of about 17-18 bucks per share in 2002 dollars. Works out to about the same if you subtract the cost of buyback from the cuumulative pile of cash. Yes, we get a fair price of $100 or so. In 2023 dollars. Just to provide a smidgen of perspective, in order to get 41 bucks per share, I have to be willing to take a discount rate of 3% over a 20 year term. Which is a bit low for my liking as far as long term equity returns go. John