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

To: Jim Mullens who wrote (692)	2/3/2004 11:41:37 AM
From: tinkershaw	Respond to of 2955

I was my understanding that unit pricing would increase with the ARM 9 and ARM 11 cores. Does your model using $.10/core reflect increased unit pricing? That is my understanding as well, and Morgan Stanley guesstimated royalties would be 2.5x higher on these cores. Which would propel the cellphone royalty growth potential even higher than what I described. However, if you look at revenues per cores from this quarter they actually went down. Revenue per cores appear to be a steady state to slightly declining affair at the moment despite 15% of cores being shipped being ARM9s this quarter. I am therefore somewhat suspect of just how much ARM9 and ARM11 will raise the per core take. This is particularly true at higher volumes, as for example the digital toaster I bought last night. $29. For ARM to get a $.10 royalty at their present rate of 1% or less per chip, the chip for that toaster would have needed to cost $10 or so. And no toaster is going to install a chip costing practically 1/2 the wholesale price. Therefore royalty per core almost has to decline as volumes rise. Making me value licensing revenue all the more. Perhaps next quarter will bring new evidence to the contrary. The contrast between the growth in the total cell phone market vs the CDMA based market (Qualcomm’s niche) is very striking and further differentiates the unique potential of QCOM. It is simply amazing that QCOM is getting 5% or 5.5% of the price of the WHOLE PRODUCT and not just its chips. True Gorilla power of this sort has not been seen, since well, Microsoft I suppose. ARM just asks for a portion of the chip, QCOM has the audacity to say, no, I want a cut of the windshield wipers and trim as well as that CDMA receiver (of course their is an upper limit, but according to QCOM that limit has not yet been reached). All in all I've had to reassess somewhat my ARMHY investment. I took some large profits, reinvested some back into QCOM, some back into other stocks, and holding the rest in cash. With my usual market timing ARM will double in the next month, but I have to assess it the way I see it. Tinker Yes, the growth factors for CDMA are indeed superior for the cellphone industry at large. ARM already dominates the entire cellphone industry. QCOM still has what, 85% of the market to take over:) Much higher growth curve in that particular market segment for QCOM than for ARM, and ARM's growth potential not so bad at that in this sector. I can easily see ARM doubling to tripling its cell phone revenues, but given current valuations cell phone market niche itself on just royalties would seem insufficient.