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

To: JMD who wrote (6431)	12/14/1997 2:03:00 PM
From: dougjn	Read Replies (1) \| Respond to of 152472

Its not SEA, its EA, and possible all A. (India, Russia wobble.) Yes, the appearance of the Koreans or Japanese addressing their problems will cause markets to strongly rally. Then the fact that its gonna take a long time, and they are gonna try to backslide, backslide, and then get pulled up short by markets will cause more sharp declines. I think we're likely into some sharp yo yos for some time. Only way not I think would be for things to get really violently bad now. Then we might move pretty steadily up. No, even then we'd move that much more sharply back up when smoke cleared....and down again when problems, impact on us persisted, increased. We're gonna occillate for a while. I'm convincing myself to trade. Lets put it this way. If every time the techs had strong rallied for a few days we sold them, and every time they had strongly declined for several days, as in by late Friday, we bought them, we would be way ahead. I'm not positing hitting the high dead on or the bottom dead on. Could be off by days and come out way ahead. Thats why I bought back Qcom on Friday at 50.5. Although only half my prior position. Gonna be reading int'l tea leaves next week for sure. Doug

To: JMD who wrote (6431)	12/14/1997 2:15:00 PM
From: dougjn	Read Replies (1) \| Respond to of 152472

Anything a CFO says to security analysts is no longer inside info. (I'm a (reformed) NY securities lawyer.) (If there is any issue, it would be whether he has a duty to be simultaneously widely disseminating, not whether you who heard the info given to Bear Stearns can pass it on.) Could you give more detail on just what he said re: Korea? Looking at the 10K, it seems the impact could be pretty darn big. I could even imagine flat 98 w/97. But I just don't know. What I'm trying to figure out is what would be the impact if all Korea went away for a while for Q. I am virtually certain no one is currently factoring that in. But I think its real possible. That Korea goes on total hold in importing ASICs for a while, for example. No new towers, for example. For a while. Trouble is that Co. has to date done less well than break even on handset sales, from what I can see. May have made money on them last quarter.

To: JMD who wrote (6431)	12/14/1997 2:17:00 PM
From: kech	Read Replies (2) \| Respond to of 152472

Mike, Thanks for putting a little context on White's comments. The dent/scratch, wreck metaphor is probably a good one. And it is possible that the market is accurately pricing in a dent by dropping 20 points on a drop in earnings from 2.30 to 2.00. Hey, ORCL was only short 4cents and look what happened there. I followed up on Doug's comment a little more. While it is true that 151 million in royalty with operating income of 97 million means that the operating income is pretty important for earnings. However, keep in mind that this is on $2 billion in total revenue when we know margins on commercial services are going to improve due to improved production techniques etc. The margin there even last year was $270 million. So a small improvement in margins, as we expect to be occurring could go a long way in offsetting the royalty stream. The party wrecker is R&D expense at $236 million. Presumably this will stay the same or drop and certainly drop as percent of revenue. Also selling expense at $147 million might start to drop as percent of revenues. A lot of the push here was to get CDMA accepted. Now that it is a fait accompli and potential customers are knocking at the door for a better mousetrap some of this might drop as a percent of revenues. Also note what is in the royalty stream: License, royalty and development fees for fiscal 1997 were $152 million, a 52% increase compared to revenues of $100 million for fiscal 1996. The increase was driven by increased royalties recognized in conjunction with the worldwide sales of subscriber units and infrastructure equipment utilizing the Company's CDMA technology by the Company's licensees. Royalty income will fluctuate quarter to quarter due to the timing and amount of sales by the Company's licensees and the Company expects to continue to experience considerable fluctuations in quarterly and annual operating results in the future due to variations in the amount and timing of recognition of CDMA license, royalty and development fees. To date, the Company has entered into numerous royalty-bearing license agreements including agreements with thirty subscriber, ten infrastructure, three ASICs and seventeen test equipment licensees. In other words, the royalty stream includes one time royalties paid by companies signing agreements to make CDMA equipment (perhaps a large chunk of this year and last years royalties - in fact if you look at last year's royalties components they say this). In addition there are ongoing royalties by many ASIC makers unrelated to Korea. Finally, royalties will be dependent on current sales going forward not on percentage of Korea's market compared to current subscriber base. As US and other providers scale up they should be going through a rapid growth phase which Korea presumably would have had behind it (and now unfortunately has behind it). Also in thinking about reduction in royalty payments from Korea part comes from sales that would have been made that won't be made and part comes from decline in value of won in valuing those payments. If wireless is essentially the only way to get a phone in Korea it may be a fairly inelastic demand. If people aren't bankrupt, even though many banks will be, they may still demand basic phone service. The infrastructure is already set up. Although some if its growth will be cut back - see Motorola announcing concerns for a $180 million infrastructure CDMA deal in Korea. In terms of the value of the payments themselves, as others have said, the price of the phone will have to rise since large components are made in US and these components are priced in US dollars by QCOM. A digital phone is after all just one big ASIC in a plastic case :). Therefore, the value of the royalty stream on a per phone basis will also rise in won even as the won falls. Just trying to think through the way in which operating income will affected.