To Ramsey and ALL:
I know it is Ramsey's job to be the resident Chicken Little, but I think his concerns regarding Korea and Qualcomm are misplaced. Qualcomm was hit with several surprises/problems last February. Samsung, which had been pushing QC to expand ASIC capacity, suddenly wanted to defer purchases; Hansol PCS backed out on a $60mm Q phone order, Sprint Q sales slowed down and manufacturing problems started popping up in the QCP product family. Simply put, the company got blindsided by a confluence of problems that resulted in a cost structure that was excessive vis-a-vis the near-term revenue opportunity.
Qualcomm has subsequently worked to substantively improve its visibility with its Korean ASIC customers; it has solved its manufacturing problems and broadened its geographic customer footprint; and it is reaching critical mass with its infrastructure business. On the other side of the equation, the Koreans are exporting substantially more phones throughout Asia and into Latin America, so Korea ASIC demand (and royalties) are becoming progressively more stable as time progresses despite Korea's continuing economic travails.
Moving beyond Korea to the worldwide macroeconomic situation, I would note that some observers are suggesting the current economic crisis is a precursor to a 1930s-style depression. While I would acknowledge that the IMF's tight-money policies, particularly with regard to the Asian tigers, does beg history to repeat itself. Nevertheless there are very critical differences between then and now. Back in the 1930s, the economies of the world's MAJOR industrial powers, i.e. the U.S. and Europe, collapsed. In contrast, with the exception of Japan, the world's major industrial economies, led by the U.S., are actually in excellent shape. Back in the '20s the U.S. banking system also collapsed AND there was no economic safety net, i.e. social security etc, to help the populace weather the storm. Granted there are parallels to this situation in Indonesia and Russia, but these are nascent economies, which at best contributed marginal growth to the world marketplace. Japan is worrisome, but it is an extremely rich country and there is little likelihood of a systemic collapse. Rather, I think the risk is greater of a protracted regional economic malaise, which could sap strength from worldwide economic growth, but hardly precipitate an apocalypse. I believe that when historians look back at recent events, in say ten years, the Asian crisis will be viewed as a correct and appropriate marketplace reaction to a structurally flawed economic paradigm. This reaction will have precipitated a crisis in confidence that enveloped a number of emerging markets and developing countries and unfortunately inflicted a lot of pain and suffering on people who did not have a lot to begin with. I also believe that, with the passage of time, healthier and more competitive Asian tigers will emerge...with economies built on sustainable and realistic capital allocation. Oh, and by the way, Japan will not fall into the Pacific.
In my humble opinion, at 9300, the U.S. stock market was discounting nirvana in perpetuity. Guess what? Nirvana has been postponed. But, the Russell 2000 has dropped by almost 30% and many O-T-C issues are down by 50% or more. The Internet bubble has been soundly pricked, and some of the goofy big-cap valuations, i.e. Coke down almost 25% from its high, have become, shall we say, a little less goofy. There are some excellent, bordering on spectacular, values now available..good businesses, with impeccable balance sheets and strong business prospects, trading at 10x to 12x earnings. Such valuations will not persist in an era of sub-6% interest rates. Therefore this is NOT the time to panic, this is the time to go shopping for the future.
With regard to Qualcomm...I have known the company and its management for an awfully long time. Clearly I am a bigot in this regard, but few individuals inspire in me the kind of idolatry that I hold for Irwin Jacobs. We could not have a smarter, more honorable or pragmatic steward to pilot the ship through the current storm. Based on everything I know, and a few thousand hours of research that, BTW does encompass the company's developing markets exposure, I believe that business has turned with a vengeance. During FY99, for the first time, I think ALL the company's business units will contribute to profitability and therefore I expect a quantum improvement in the company's earnings (coupled with a similar quantum improvement in its stock price).
As for the 3G noise, i.e. Businessweek and Forbes, well I think it's actually pretty amusing. I, for one, vividly recall a Wall Street Journal article from 1996 entitled "Jacob's Patter" where the reporter opined that CDMA was systemically flawed and that Dr. Jacobs had sold the world a bunch of hooey. Two months later, CDMA networks began going commercial all over the world. Interesting timing huh? I believe that Ericsson and its W-CDMA cohorts are attempting to pressure Qualcomm from all directions, attempting to force capitulation to their desires and their terms. However, I am ABSOLUTELY convinced that Qualcomm's intellectual properties are essential to the W-CDMA standard that has been proposed and that the Europeans have no cost or time efficient way to circumvent licensing the company's technology. Already we see Ericsson's position softening on the margin, i.e. the recent "make nice" noises emanating from Japan. This posturing is no different from the White House leaks which were used to prepare the American people for Clinton's "confession". Now is the time to have the courage of your convictions and the wisdom and professionalism to separate truth from fiction.
Best regards to all,
Gregg |
