No shrimp but tasty factbits, Jon:
QCOM keeps to business on its Analyst Day (briefing and dinner for the select few the day/evening before); 0730 mix it up with the new demos and their handlers - 0800 to 1230 presentation and Q+A with no break (like a law school exam) and then cardboard sandwiches in a plastic box and more tech talk with the demo toys.
Some fragments from the day which amused me:
1. My favorite - Questioner takes Bill K to task for his self-pride in trading his bond portfolio to improve yields by a few dozen basis points, then he changes tone to ask why one of the great companies and corporate successes in the world should be holding $6.4B for bond yields instead of investing it in the business or distributing it to shareholders. Bill K then IJ dance around the need to maintain flexibility, attend to opportunities and so forth. BillK says very plainly that Q has little history of acquisitions but they look at many targets and are prepared for cash acqs. (Interesting, but I hope they do not spread the money around to buy a portfolio of companies less successful than the core business; a SnapTrack great!.) Then IJ acknowledges that the money is the shareholders and will they understand that it is wrong to maintain cash for bond interest! (He already has a nice dividend stream at the 15% tax rate on divs). From my seat the best answer was not given: when you are competing against companies which are six or ten times larger than you, which invest in R+D with almost as many billions as you spend millions; and when you have come through a decade of building a business from the cash flow you could eke out of inventing, commercializing and expanding a new technical standard against entrenched, successful and dominant tech companies which have far better connections with carriers, governments and standards bodies, then you place a high value on cash. You treasure the profits you have retained and you consider it your best weapon to expand into the next contested market or fight the next adverse contingency.
2. Modoff drilled down, as some of you have noted, on the implications of Rev A of EV-DO for the affection of carriers as an alternative to EV-DV Rev D. It's worth listening to the Q and the A's from IJ and SJ (about third question in second Q+A session, about 20 mins from end of session). The coy replies are in tone, we want to be prepared to meet the needs and demands of our customers' customers which means we must work hard and fast on the EV-DV standard and products; "We will work on it and watch it to see what plays out!" But the tone was one of scepticsm about the relative merits of EV-DV and the changed market positioning of DO after the rollout decision of VZ.
3. TI lawsuit. A harsh question sounding in quasi-lawyer talk asked what QCOM would do if it won the suit and as a result the license agreement with TI was terminated causing Q to lose its access to important TI IPR for DSP; then the questioner challenged Q to explain how they could prevent TI from winning over one of Q's four largest customers (constituting in aggregate >50% of Q rev). Daddy J is one admirable executive; he is so well informed and so capable on every aspect of the business. To hear him jump in and flesh out background or explain modalities of chip architecture, a standard's development or a legal conflict is inspiring. Wish there were more like him. Well, he disclaims legal expertise, then straight out says that loss of Q's license rights from TI is not one of the downside results which can occur from success in the litigation (and, he is probably right but I repeat my prediction of many months ago that termination of TI's rights under the license agreement is NOT going to happen even if Q proves all its claims of breach). Then he slides into the commercial question. There will be competition in the chipset business from TI and from others. He explains, plausibly to me, that each major customer of Q will probably buy from TI (if they have not already), but are unlikely to move all their ASIC chips to TI products. They will commit several models to TI chips and see how they work, how they inter-operate on carriers' networks and how they sell to end-users. Then they will make other incremental decisions. No lawsuit is going to stop competition and no customer decision is irrevocable; the only way to win is to keep moving the technical-commercial bar up higher and higher and keep jumping over it with better products, better service and support and better prices. All my paraphrase as is everything in this post!
4. India. Jeff is not the sharpest blade in the Jacob's family Mach3, but he is sturdy and straightforward. He gave a pretty factual (I hope accurate) explanation of the reasons why Reliance has been treading water this year after the fantastic sub growth of last year (building network; improving sub service; training personnel) and then said the fast growth would resume in the seocnd half of "next year". Someone in the front row, maybe Daddy J, must have winced and cued him silently because a half-minute later, he reverted and said I meant "second half of this year". Good copy in slides and text on India and the comparative position of CDMA carriers and GSM carriers. Also good stuff on SE Asia. Nothing at all on Russia or Central Asia.
5. China - TT and IJ and JJ gave attention to China. Unicom is described as "chugging along" leaving the impression that they expect faster growth from CHU. The tilt on 3G policy is that they expect a decision by end of year or first part '05, but, JJ said, I probably said exactly the same thing to you last year at this session. IJ remarked that TD-SCDMA will be a lot slower to come commercial than what its proponents are saying now, pretty much the same reasons and process as the story on w-CDMA in 2001, he said. He was very clear in answer to a question that evolution to 3G has to be good for QCOM because it opens to development by their customers sales to China Mobile, Telecom and Netcom whereas now they are restricted in cdma sales to CHU.
6. BREW. Paul Jacobs was near euphoria as he presented on BREW and QChat and the uptakes of BREW delivered Apps in Japan, Korea and U.S. Look at the slides. By the way many of the slides are new and interesting; well worth printing out and studying. It seems that the QCOM message is finally being received by carriers: that BREW is not just a Java me-too language; it's a hardware-software system to allow the handset vendor to download the User Interface and special apps required by each of its customers and to allow each subscriber to download a custom package of apps and services and features. Adoption in Brazil and India and China seems to give PJ as much adrenalin as the big commercial numbers in downloads and ARPU increase in Korea and Japan.
7. Cash Flow. Bill K presented last, just before the second Q+A session so about 1145 to 1205. Many on this board get your return on this investment from the amazing technology, the arcane minutiae of product spex and standard modifications and the struggle of a 98 lb weakling for the romance of the beach beauties after humiliating all the beach bullies (or are you ALL too young to have read the Charles Atlas ads in the back of comic books?). But I like my return in dollars of stock appreciation and I don't scorn dividends either. So it warms my heart when Bill K puts up the slides showing cash flow and cash flow as a % of rev. Hey I get my jollies from reading footnotes explaining the non-GAAP variations in QCOM's cash flow reporting. And I will happily forego immediate distribution of the $6.4B cash horde they are sitting on; if I were IJ and I had been through what he has been through, I would change it all into silver dollars and put it in a warehouse where I could dive in it and swim in it like another memorable comic book character.
8. Tony Thornley. It was not TT's day in the sun. IJ and SJ and PJ had the dash and drama today. TT is very smart and very solid; if anything sudden happened to IJ, after the stock lost a third of its value, he has the breadth and leadership to pull the company from grief and to make the decisions which require balance, valuation, risk appraisal, customer concern and governmental management. A high point of his presentation today, for me, was the use of a phrase which I have never heard from a QCOMmie; he referred to GSM-GPRS as "yesterday's technology." He described how important it was for QCOM to bring out low-tier handsets which are as (or nearly as) inexpensive as GSM phones. But I sensed that the company ego has come over a big hill; GSM is no longer the competition for the wireless future. We are in the phase of CDMA development and the goals of QCOM are to make the future come about as fast and as great as it can be and to win the largest share.
9. SJ on competition. The SJ presentation is amazing; he talks so fast and with such clarity and urgency that you have to listen twice (which I will later). The fingerprint of a really smart executive is that he can make very complicated subjects understandable without losing accuracy. But the best of his presentation for me was his reply to a tough, probing question about the products and prospective market share of competitors. I liked it because he shows such maturity and balance between dodging the question and taunting the competition. It was fun when Don Schrock poked at NOK or laughed at Samsung's in-house chips, but it's not good for business and it's definitely not the way of IJ. SJ admitted that the QCOM 6200 chip is not the most integrated or highest performance chip; his slides use the 6250 as the comparison and he asserts that it materially raises the standard for integration and functionality. He admired the chips of his competitors as good solutions, defended his slide and his statements about the advantages of integration (by the way, this topic has been much discussed on this Board and those interested should listen to IJ and SJ and to the Q+A because they give a lot of information on the strategy of integration as what they perceive to be optimal right now, while putting R+D into other ways of accomplishing greater functionality, lower cost/BOM and better power efficiency)and declined to give specific percentage reduction in parts/BOM or cost savings in relation to any particular chip as compared to a comparable competitive chip. When pressed to answer whether QCOM would achieve its goal of 50% market share in w-CDMA chips by 4Q'04, he said clearly that they did not expect to do so. This is a goal which will take at least two years of hard work. IJ joined to comment generally on early stage combat for market share. He noted that many of the major companies in wireless and in semiconductors have put major investments in w-CDMA over several years. At the outset there will be many who will make for their own use or for merchant sales. He expects that only a few will stay the course; others will despair of achieving scale, will demand higher margins than they can earn in this product market, will consolidate efforts with other competitors or will elect to out-source chips for their own production because that gives them a better use of their capital, better margins on handsets and faster time to market. I liked the tone of reality and respect for the difficulties QCOM will face in the next stage of its corporate development.
These are some of my outtakes from an intense session. I repeat that all my comments are recollective; I don't do shorthand and haven't taken extensive notes or reviewed the slides.
propitious |
