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

To: bananawind who wrote (9193)	3/12/1998 10:38:00 AM
From: Harvey Rosenkrantz	Respond to of 152472

The $400 million would fit well with a win in Mexico. If I remember correctly it was stated that the Mexican infrastructure would be about $500 million.(If it came to pass.)

To: bananawind who wrote (9193)	3/12/1998 10:57:00 AM
From: Ramsey Su	Read Replies (1) \| Respond to of 152472

Jim, I am no expert on this subject. may be Gregg Powers could enlighten us. My basic take on this is positive and I really would have like to see them arrange 9 digit lines. This is the cheapest avenue for corporate financing. Much cheaper than issuing new shares. Remember the convertibles, was it last yr? That was much more expensive but was needed because QCOM did not have the balance sheet to satisfy bankers at the time. The best case scenario is QCOM being awarded the type of infra contracts that MOT and others have been getting. They can make money not only on the sale but a premium for financing over their cost. The risk, obviously, is a default, especially to the type of countries that QCOM is installing now. The CFO also mentioned some type of pass through technique by selling the financing. In simple terms, it is like a car dealership financing vehicles for the purchaser, then turn around and sell the paper to banks and other financial institutions. They definitely need the financing, if they are to move into the big league. Ramsey

To: bananawind who wrote (9193)	3/12/1998 11:04:00 AM
From: Gregg Powers	Read Replies (1) \| Respond to of 152472

A perspective on credit agreements... QC entered into a "syndicated" agreement led by Citibank and Bank of America. What does that mean? Citi and BoA represent a group of institutions that commit to fund a portion of the agreement in some prearranged percentage. The lead lenders collect an origination fee for their effort, and the whole group participates in a "commitment fee" (typically an 1/8 to a 1/4 of one percent) on the UNFUNDED balance. So, as Jim correctly points out, the credit facility is not free and it would be unwise for QC to put in place a larger amount than was necessary for near-term requirements. But there are several very important addendum. $400mm could have been arranged by either Citi or BoA; the fact that QC could attract two of the largest US banks as lead syndicators suggests that the line will be expanded significantly in the future. With $700mm already in the bank, the deal itself suggests that QC has something fairly large on the near-term horizon and, MORE IMPORTANTLY, that the company believes that its business model is stabilizing and that its stock is undervalued. The latter points are somewhat subtle, but here goes. To this juncture, QC always funded its growth with equity. Initially the company sold common stock, which represents a perpetual claim on the business (and therefore is the most expensive form of financing), more recently it turned to preferred stock (which is a more finite claim, albeit convertible into common in the $70s), and now management believes that debt is the best alternative. Think this through, pure equity financing represents the lowest risk alternative to the enterprise since, obviously, the company never has to pay anyone back--although shareholders do demand a return in the form of capital appreciation or (God forbid) dividends. The downside to equity issuance is that existing shareholders suffer dilution (i.e. if the business is worth $100 and management sells stock at $50, some of this differential is lost). In contrast, debt financing does not dilute shareholder ownership, but does increase financial risk since the lenders have a priority claim and will get their pound of flesh first. In conclusion, the credit agreement suggests to me: (1) that company has some pending and significant need to expand its capital base (i.e. large infrastructure order/orders), (2) management is sufficiently confident in the business outlook to begin leveraging the balance sheet and (3) management also believes that the stock is sufficiently undervalued as to make additional equity issuance an unattractive alternative. Time for a ham sandwich. Best regards, Gregg