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

To: Mike Buckley who wrote (938)	6/13/2004 2:18:36 PM
From: hueyone	Respond to of 2955

re: The company is now generating more than $1.5 billion in annual free cash flow net of options-related tax benefits. A more useful measurement would be free cash flow net of options related expense, including the resultant tax savings. Free cash flow net of options -related tax benefits can easily be eaten up just buying back shares to offset dilution---although I am not talking specifically about Qualcomm in this case. The options-related tax benefits is simply the tax savings resulting from recognizing the stock options expense as the IRS permits. When you compensate an employee with cash, you don't exclude the related tax savings when subsequently looking at measures of profitability; it makes no less sense to exclude the related tax savings resulting from options related expense. The options expense as well as the resultant tax savings should be included in free cash flow if you your free cash flow number is to be a meaningful number. JMO, Huey

To: Mike Buckley who wrote (938)	6/13/2004 6:34:14 PM
From: rkral	Read Replies (1) \| Respond to of 2955

Mike, re "The company is now generating more than $1.5 billion in annual free cash flow net of options-related tax benefits. " Like Huey, I'm interpreting "net of" to mean "excluding". Is that how you meant it? Ron P.S. If I'd taken some bean-counting courses decades ago, I wouldn't have to ask such a stupid question. Errr, on second thought .. I prefer to ask the question. :-)

To: Mike Buckley who wrote (938)	6/14/2004 11:15:09 AM
From: Apollo	Respond to of 2955

Mike, What a delight for me to see your contribution to this folder, which I very much enjoyed reading. I agree that one of your oft-repeated messages has been for each participant to do their own due diligence and to hold themselves responsible for their own investment decisions. I think generating BREW revenues would be great, but I've never personally expected anything very significant from that stream, and have generally seen it as a vehicle to promote wireless communications in general. Similar, I believe, to what Microsoft did with the internet browser; not profitable, but a terrific vehicle for ramping up PC sales and extending Microsoft software sales. Mike, I appreciate your comments about FCF. I am less facile with the ratio of Enterprise Value/FCF. I don't know how valid a marker of value this ratio is, or what the evidence says that this surrogate is as a predictor for future returns. I see from this link, phonescoop.com that Motorola will come out in the 2nd half 2004 with a cell phone with 2-way videoconferencing. This and others like it should pave the way for videoconferencing. This will probably take the usual ramp up from early adopters to mainstream over time, but once the tornado hits, Qcom should continue to benefit. Who won't be attracted to videoconferencing? I think this will be a big hit, and will become someday what voice telephony is today.....taken for granted. Apollo

To: Mike Buckley who wrote (938)	6/14/2004 4:23:56 PM
From: Jim Mullens	Read Replies (2) \| Respond to of 2955

Mike, re: Qualcomm and “Though the continued increase in FCF per share following last year's 56% increase is terrific news, the enterprise value is now equal to 32 years of trailing FCF. It's very difficult to value a stock when the company is growing FCF so rapidly. Buyer beware for not being in the stock and buyer beware for being in it. . This is the troubling thing to me about FCF valuation methodology. I’ll admit I don’t understand it, after attempting to read various articles / passages in books. This is just hypothetical (Quicken site now requires a subscription) The discounted FCF methodology values Qualcomm in the $60 per my recollection. This simple extrapolation of EPS and PEs value QCOM at $95 in 2005 and $130 in 2008 based upon a conservative $5.00 EPS and 26PE. In 2008 there should be plenty of growth left in the Q as GSM should be mid-way into WCDMA conversions. ...........EPS...Growth-%...................PE.....................$/sh ...........................yoy........N 5yrs..... w/ PEG 1.7 2002 $0.98........ 2003 $1.40........42% 2004 $2.05........46..........24%.......41.......................$84 2005 $2.56........25..........22%.......37.......................$95 2006 $3.20........25 2007 $4.00........25 2008 $5.00........25..........15%.......26.....................$130 2009 $6.00........20 2010 $7.00........17 IMO one has a fairly good chance of at least doubling their money in four years (EPS growing to $5/sh- conservative), yet it’s my understanding that the DCF technique with its discounting mechanism cautions as not worth the risk. Wonder if the DCF method ever works /worked for projected high growth companies such as MSFT, INTC, CSCO?

To: Mike Buckley who wrote (938)	6/18/2004 12:22:16 PM
From: tinkershaw	Read Replies (1) \| Respond to of 2955

Mike, re: 32 years trailing FCF. My confidence in QCOM's ability to double or more this FCF comes from the fact of CDMA's increasing market penetration into an already growing wireless market. Last figures I've seen (and others have much more knowledge on this) is that CDMA was approximately 17% of the market. Not only do I see this market percentage going up to 30-40% of the total market, but someday perhaps 60, 70, 80% or more of the market, if 3G technologies become the norm everywhere. Since QCOM is CDMA, the growth potential places the valuation into good context as QCOM does not need to grow an untested market but rather just has to see the "natural" progression into a 3G centric wireless world for it to gain marketshare. In addition to this, EV-DO seems to be doing better than expected, or at least if Sprint goes that way. Read an analyst article yesterday predicting that Sprint would shortly announce its high-speed wireless plans, to be rolled out over the next 2 years, and the choice would be equivalent to Verizon's selection of EV-DO. Verizon has indeed pushed the marketplace forward, and Cingular will follow-suit on their W-CDMA path. America is becoming QCOM. China? Always enigmatic, but it is a market that has hardly started CDMA and yet we know it is going to some form of CDMA. To the surprise of the carmakers, the average car purchased in China is more expensive than the average car purchased in the U.S. The Chinese consumer likes its luxuries. Will this translate to cellphones? If so, China will not only offer volume but high-end sales to boot. With so much growth potential that is not largely dependent upon having to grow a new market but rather the "natural" evolution of the market, one can easily see that 32x FCF trailing fall to 16 and 8 and so on over the coming decade were QCOM's stock price to remain stagnant. I'm somewhat optmistic in that regard I would have to confess. Tinker