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

To: bdog who wrote (18126)	11/10/1998 5:37:00 PM
From: Gregg Powers	Respond to of 152472

bdog: If your arguments weren't all bluster with no analysis I wouldn't be so testy. Did you listen to the conference call? Have you spoken to the company? Has anyone at the company told you that the sky was falling? Management IS being balanced. The company simply noted that financial markets worldwide are under significant duress and that it is a difficult time for start-up operators to secure financing to build out wireless networks in various emerging markets. Within this context, there ARE risks in QC's business. Although the North American is catching up, Korea remains the company's largest market. Heretofore Korean demand has remained strong, but are you willing to guarantee that 500,000 Koreans per month will continue to sign up for cellular/PCS service? Management, burned once before, has simply refused to extrapolate continuity to domestic Korean demand...how unfair! Japan HAS launched, but the CDMA network build-out won't be complete until March 1999 so one should not bank on Japanese subscriber growth to drive the company's first two quarters. Japan will become progressively more important as calendar 1999 evolves, but will have limited impact on QC's calender fourth quarter. The Mexican and Brazilian CDMA networks are being constructed and the company has put handset capacity in place to serve these markets...but again, the volumes won't be material until the middle of next year. So, as I have noted to you publicly and privately, the company is being particularly conservative with front-end guidance for fiscal 1999. Now, how exactly would you have Irwin "spin" these facts to suit your fancy? The company has blessed $2.50 to $2.70...hardly tepid growth. Management believes that this guidance level is highly conservative and contemplates most of what could go wrong (but little of what could go right). Based on my analysis, this guidance likely contemplates continued losses within the infrastructure group. Several sell-side analysts, who also understand this arithmetic, have expressed disappointment that the company won't commit to infrastructure profits in FY99. Would you have QC promise such a positive performance just to give these analysts "confidence?" Would you personally supply financing to the Ukraine and Mexican operators to facilitate build-out and validate this guarantee? Details..details..a messy impediment to your demand for a higher stock price right now..so sorry. Given the company's strong margin performance during September, several analysts have had difficulty "forcing" their models down to the guidance range...I know because I have spoken with several of these guys. Since they can't make the numbers work, their instinctive conclusion is to assume that there is some other challenge in the business beyond what management has disclosed. Most of the analysts in this camp believe that the company is concerned about accelerating declines in handset average selling price. Although management has specifically stated that they don't see anything out of the ordinary going on with handset ASPs, the concern remains manifest. So the Street has a short list of concerns that really cannot be addressed by anything other than the passage of time. As I have said before, it is not like the company predicted doom and gloom. It simply refused to allow analysts to model to the $3.25+ range that would have logically flowed from the September quarter's performance. As I have also said before, the Street does not like to lower expectations...and such is an anathema to momentum investors. The stock's performance, within this context, hardly seems incongruous. The go-go momentum boys, who got in expecting a blow-out September quarter to be followed by a blow-out December (with the latter being the seasonally strong Christmas selling season), are going out the door. The stock is likely be bought by people who don't believe that 40% growth, against a 23x multiple, is a disaster...and who believe that there is upside to these numbers as the year progress. FWIW, my break-up analysis, which adjusts for infrastructure losses, would suggest that the stock is undervalued by more than half...but unless you plan to break her up, or are a true value investor, such conclusions mean little in the short-run. Of course, as a struggle through my valium induced stupor, I probably have it all wrong.