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

To: kech who wrote (6435)	12/14/1997 3:51:00 PM
From: JMD	Read Replies (1) \| Respond to of 152472

Tom, good post. There are so damn many variable here and lots of simultaneous equations. Right now it's looking more like a casino than a stock market out there--important to get some stability into this environment. But you and Doug have done a great job identifying the key economic questions. Now I'd be most appreciative if you two would supply some answers. :-) Regards, Mike Doyle

To: kech who wrote (6435)	12/14/1997 4:24:00 PM
From: dougjn	Respond to of 152472

Tom, I think some of your numbers are a bit off, but that's not the most important point. Re: numbers off. Q's 97 gross profit on Comm. Systems was 370m, not 270m, before Selling exp., and 225m after. One can speculate as to how to allocate selling expense. Certainly little should go to contract services, which is all Globalstar. The real point, however, is that any loss in royalties from Korea, due to either lower sell through of phones w/Asics also paying royalties, or lower Wan conversion rates for what is sold, goes almost dollar for dollar to the bottom line. (What costs do you think will be reduced by lower wan translation rates, 50% lower?) (Lower asic sales will result in some reduced comm system costs.) And in 97 royalties were 150% of aggregate profit before tax. Lets say, that in 1998 Q expected Korean royalty $ amounts to remain flat for 98, before current crisis. Lets say Korea, w/75% of some recent moment's installed CDMA installed base (as per the estimable Joe Kernan), accounted for 1/3 of 97 royalties, or 50mil. Course there are Asics in there also. Lets say asics profits in the 370 mill of aggregate comm profits is another 35 mill. Wan is down 50%. Probably go more, then back up. Lets use 50%. That alone is 25mill off. Then lets say cell phone sales drop by 1/3. Times remaining 1/2 thats another 8 mill or $33 mill off so far. Asics also off by 1/3. Sold in dollars so just the 1/3. 10mil. 43 mill all told. Roughly 75% profit increase had been expected or an operating income (before interest, taxes) of 190mil. Less worst case $43 mil equals down 23%. Times $2.20 net per share equals less .50, or 1.70. Times 30 equals current price. All very more or less. Doug