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

To: JGoren who wrote (26366)	4/7/1999 11:07:00 AM
From: DaveMG	Read Replies (4) \| Respond to of 152472

All: I posted this on G&K thread. I had been saying that I was amazed at how the psychology toward Q had changed so quickly and that I felt the story hadn't in fact changed nearly as much as the psychology.. Warning: it's long.. From Mike B. I understand your point, but I don't agree with you that Qualcomm, the company, is essentially the same today as when the stock was trading in the $50 - $70 range. Within a couple of weeks of announcing the Ericsson deal, two analysts increased the Q's FY2000 EPS 25%. That's a significant change in my mind that warrants special attention. My response: Yes but I think people who owned the stock felt that this "value" was already there, locked in if you will, and that it was just a matter of time before this value was set free, whether through improvements in the infrastructure biz itself or through a sale. I think that in general terms the book that describes best what 's just happened is by Philip Fisher, Common Stocks Uncommon Profits. QCOM fits his mould to the T. These quotes all come from the chapter entitled “When to Buy”: "These companies are usually working in one way on the very frontiers of scientific technology. They are developing various new products or processes from the library through the pilot plant to the early stages of commercial production. All of this costs money in varying amounts. All of it is a drain on other profits of the business. Even in the early stage of commercial production the extra sales expense involved in building sufficient volume for a new product to furnish the desired margin of profit is such that the out of pocket losses at this stage of development may be greater than they were during the pilot plant period……………………………As word gets out about a spectacular new product in the lab of a well run company, eager buyers bid up the price of that companies shares. When word comes of a successful pilot plant operation, the shares go still higher. Few think of the old analogy that running a pilot plant is like driving an automobile over a winding country road at 10 miles per hour. Running a commercial plant is like driving on that same road at 100 miles per hour. Then when month after month difficulties crop up in getting the commercial plant started, those unexpected expenses cause per share earnings to dip noticeably. Word spreads that the plant is in trouble. Nobody can guarantee when, if ever, the problems will be solved. The former eager buyers of the stock become discouraged sellers. Down goes the price of the stock. The longer the shakedown lasts the more the quotations sag. At last comes the good news that the plant is finally running smoothly. A two day rally occurs in the price of the stock. However, in the following quarter when special sales expenses have caused a further sag in net income, the stock falls to the lowest price in years. Word passes all through the financial community that the management has blundered. AT THIS POINT THE STOCK MIGHT WELL PROVE A SENSATIONAL BUY…Once the extra sales effort has produced enough volume to make the first production scale plant pay, normal sales effort is frequently enough to continue the upward movement of the sales curve for many years. Since the same techniques are used, the placing in operation of a second, third, fourth, and fifth plant can nearly always be done without the delays and special expenses that occurred during the prolonged shakedown period of the first plant. By the time plant number Five is running at capacity, the company has grown so big and so prosperous that the whole cycle can be repeated on another brand new product without the same drain on earnings percentage wise or the same downward effect on the price of the companies shares. The investor has acquired at the right time an investment which can grow for him for many years." I didn't copy all this stuff out to show you what a genius I am because I bought the stock for less than it is now. The interesting thing to me is that if one looks at a chart of QCOM since the IPO one sees this apparently typical trajectory played over a multiyear period. Now of course there are idiosyncrasies to every story but in essence this blueprint is what seems to be happening. The stock ran up after the IPO to 43$/share in Sept 93 on Great Expectations but guess what? Peoples expectations had outrun the pace of the events in the real world. The Koreans were the early adopters, an island in a sea of GSM. Sprint didn't get up and running until 1996-1997. The Japanese network is only now getting into service, etc. Meanwhile the story got better and better and so did QCOMs numbers, just look at revenue growth over the last couple of years. IMO the rev growth was the tip off. It's MUCH easier to clean up your margins than get that kind of revenue growth.. Of course the courtcase and the 3G standards case are an example of FUD on a grand scale and certainly didn't and don't make it any easier to figure out what's goin on. The lesson to be learned IMO is that when one recognizes a potential emerging Gorilla that one should not allow oneself to be distracted by all of the noise that invariably accompanies the story, a lot which is of course placed out there by competitors. Keeping ones eye on the ball would have allowed one to by shares in the Oct selloff for the same 43$ as in 1993. Someone who buys in now might make 10 x their money but it will be much harder to make 30x, and that my friends is a BIG difference.Of course this wild and crazy market we're experiencing makes it possible to argue that if you'd bought all sorts of other things in October you'd have tripled, quintupled your money so what's the big deal. My response is that these aren't normal times but that the way QCOM is apparently emerging is in fact quite “normal”. In addition if you did buy something else in Oct and want to use that money to now buy QCOM you have to pay short term cap gains.. quite a bummer. Those of you advocating the sale of the handset division should take note of the last paragraph. DMG

To: JGoren who wrote (26366)	4/7/1999 12:16:00 PM
From: Ramsey Su	Read Replies (1) \| Respond to of 152472

JGoren, since this is China related, I guess I will address it to you. Did anyone see slick willy's sales pitch on China this morning? That guy can sell ice to Eskimos. Anyway, I was wondering about how Zhu Rongji's visit will turn out. Needless to say, chicken little is worried about anything that will torpedo CDMA's entrance into China. Well, based on Willy's tone this morning, I think WTO and other concessions are done deals. Smooth sailing ahead. Ramsey