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To: Jim Mullens who wrote (53953)	5/3/2003 11:46:50 AM
From: slacker711	1 Recommendation Read Replies (1) \| Respond to of 54805

I have been adding Qualcomm over the last several months taking advantage of the “buying opportunities” being presented by the FUD/FUDD. Then why in the world do you care so much about the global view of Qualcomm? You have been given the opportunity to buy Qualcomm at what you view as a discount to its "real" value. You should be writing thank you letters to all of the journalists. Slacker

To: Jim Mullens who wrote (53953)	5/3/2003 12:03:57 PM
From: hueyone	Respond to of 54805

believe FUDD by both the GSMA Gang and the “analysts” have been very effective in holding Qualcomm share price down. Funny, I think that QCOM marketing, along with many folks' expectations of a bright future for the company, are doing a great job keeping the Qualcomm share price high. I guess one man's high is another man's low. Oh by the way, you neglected to mention again that those so called "earnings" you are claiming for QCOM include a great deal of the same old make believe pro forma component. Regards, Huey

To: Jim Mullens who wrote (53953)	5/3/2003 1:27:15 PM
From: Mike Buckley	Read Replies (6) \| Respond to of 54805

Jim, I believe Qualcomm/ the CDG have resigned themselves to being in a no-win situation in regards to the PR/ FUD/ FUDD battle [not its sustainable, competitive advantages]. Ahhh. Now I realize the context. Makes sense to me. I’m basically referring the performance of the stock, not the company itself. If the performance of the company is satisfactory to you, that indicates to me that the competitors' FUD (or FUDD) probably hasn't been tremendously effective. Just my way of looking at things. With regard to the GSMA Gang FUDD, some of the actual advertising/PR copy is outright disinformation. Thanks for the information about that. I don't pay enough attention to advertising to be aware of it. Your stuff is helpful. Regarding the stock valuation ... I don't think it's valid to compare Qualcomm with any of the companies you mentioned. However, if we are going to do that, we can't rely on such superficial information as the table you provided (though realizing you were probably trying to be respectfully brief). The business models of the companies in the table are too different from that of Qualcomm to render any meaningful comparisons in my mind. I'll disect the information in that table about Qualcomm making the assumption that the "growth rate" is the estimated five-year rate of earnings growth. When I do so, I won't attempt to validate or invalidate the assunptions other than to point out the contradictory nature of those assumptions. In other words, for now let's assume the analysts are right with the data provided in the table. Using all of the data in that table, the rate of growth for years 05 thru 07 will have to be about 30% annually. Yet the implied rate of growth from now through 04 is currently estimated only at about 7% annually. I don't believe you'll get any of those analysts to explain the basis of opinion justifying such extreme differences in the short- and medium-term rates of growth. (By the way, I've usually found that when we similarly analyze the short- and longer-term expectations, we usually get such contradictory information. My expeerience that the example of Qualcomm is the norm, not the exception.) That discrepancy between short- and medium-term expectations by the analysts also might explain why the market is providing Nokia a higher PEG. The market is telling us that Qualcomm's lower PEG is basically questioning the requirement that Qualcomm must grow 30% annually in the last three years to achieve the five-year growth rate of 20%. Now to a couple specific comments of yours that you might want to consider ... Q's 5 year growth rate has to be over 20% with WCDMA 3G kicking in 2004/05. The investment community is so used to seeing delays in WCDMA that it's understandable that everyone doesn't necessarily buy the assessment that WCDMA royalties will be so huge in such a short period of time. The market is essentially telling us that it questions that assessment or that it at least wants to see a big improvement in WCDMA royalties before it puts its money on the line. Let's assume you believe (I have no idea what you believe) that the five-year growth rate will be 30%, not 20%. That being the case, using current analysts' estimate of $1.49 in 04, the growth rate in 05 through 07 will have to be about 50% annually. Considering the disappointments in company earnings in the last few years, I think the market is telling you that it's not ready to assume average 50% growth three years in a row. QCOM has virtually the same price as AMZN with 3X the EPS (w/o QSI). I'll take your word at that. But Qualcomm does have QSI and Amazon doesn't. Therefore, it's invalid in my mind to simply say, "Well, let's not include QSI in the comparison." For a valuation metric that you didn't mention, let's turn to free cash flow net of tax benefits related to employee stock options (free cash flow generated by the company's operations) and the company's enterprise value (market cap minus cash plus long-term debt). The trailing free cash flow is a little more than $1 billion. The enterprise value is nearly $23 billion. Right now, the market is paying for more than 22 years of free cash flow. Another way to look at that 22 years of free cash flow is that the implied "earnings yield" in those 22 years is about 4.5%. That's important to remember, considering that investors can get a guarantee of about 4% by buying a ten-year federal government bond. Why would the market be willing to settle for a non-guaranteed 4.5% rate when it can get a guaranteed 4% rate based on trailing free cash flow? Because the market expects free cash flow to dramatically increase in the future. In the last quarter alone, the company generated more than $.5 billion (more than half of the entire last twelve months.) That's consistent with what we were lead to expect by management considering that QSI investments are decreasing dramatically in FY03 and 04. So, let's assume that somehow the company manages to generate $2 billion in a year (the implied run rate of Q2 free cash flow.) That being the case, the market is paying an enterprise value of 11 - 12 years of free cash flow. The "earnings yield" implied in that is about 9%, slightly more than twice the guaranteed rate investors can get by buying a government ten-year bond. That makes more sense; the market is requiring a significantly higher rate of return in exchange for the significantly higher risk. Now the question each of us as investors must ask ourselves: Should we require an even higher rate of return considering the risk? The market (right now) is clearly saying that 9% is sufficient, assuming of course that the market is using my assumption of $2 billion annually in free cash flow. Yet the market right now isn't willing to lower the earnings yield it requires. Otherwise, the stock price and the enterprise value would be higher. Frankly, I'm not sure at the moment that I'd be willing to settle for less than 9%. Are you? If so, why? --Mike Buckley