Thursday, July 27, 2006

What a load of rubbish

The way technology stocks have sunk in the last six months is quite spectacular. Here is a chart for a few of the bellwethers:

Ebay's decline has been so spectacular it deserves its own chart:

Talk about a shorter's dream. At least eBay is consistent I suppose. I never dreamed eBay could go below $25 but I guess I am learning more about the stockmarket every day. One thing that stood out from their recent earnings conference call was that organic revenue growth was only 21% year on year. That is much less than the market is used to and partly explains why the trailing PE is down to 30 from well over 100 2 years ago.

For some of the eight stocks in the first chart this is a tremendous buying opportunity. But which ones? Google and Qualcomm would be my best guesses but in the current market even these could fall another 10% for no good reason.

Nevertheless after 6 months of pain us tech investors must be due a little bit of joy?

Saturday, July 15, 2006

The truth about W-CDMA

So I was wrong about W-CDMA. Qualcomm do not own the patents for this technology; they just sell chipsets for it. This explains why the market was so spooked when Reliance said they were considering switching from CDMA-2000 to W-CDMA.

However I do not think this will affect QCOM's earnings growth in the short term. And the market will soon go back to focussing on the excellent growth rate, dividend yield and share buy back and forget about Reliance. And the share price will surely rise about $40 before the end of the year.

In fact I like QCOM so much I am going to buy some more. I regretted not buying any last year when it was below $35 so I am not going to miss this chance.

I think QCOM can earn $2 in 2007. That is a 2007 PE of 18 - far too low for a company of this quality.

Wednesday, July 12, 2006

CDMA is the only way

Last week I did something that I rarely manage to do - I sold a holding at a loss.

I know you are supposed to cut your losses and hold your profits but I hate selling at a loss. Nevertheless, with Qualcomm (QCOM) at a very attractive price last week I decided to ditch Verisign (VRSN) and get a slice of QCOM while the price was so low.

VRSN is basically fine but the share price seems to be stuck in the $20 - $25 range and the company is intent on a series of acquisitions in highly competitive markets.

I bought VRSN almost a year ago on impulse without doing much research. Unfortunately I bought in too soon after a bad earnings release and the share price continued down another 10% and pretty much stayed there. That will teach me not to do all the due diligence.

What about Qualcomm? QCOM owns the technology the enables 3G (high speed) wireless communications. If you own a 3G phone then QCOM will have received a royalty for it, either through the chip or through licensing their CDMA technology.

The market is complex as part of the world (particularly Europe) use the UMTS standard for 3G and other parts (e.g. Korea and Verizon) use CDMA2000. These standards are incompatible. However the key point is that both standards use QCOM's CDMA technology for the 3G component of the standard. As 2G (GSM or CDMAOne) phones are phased out over the next five years or so the growth in 3G phone sales has to accelerate.

The QCOM share price has dropped recently as there has been some talk of operators exploring GSM rather than CDMA. However going forward, as far as I am aware, there is only one path for operators to take, and that involves CDMA.

So I am not sure what all the fuss is about. But $38 is a great price for a company of the caliber of QCOM.

As Jack Miller once said, buy QCOM with confidence!

Saturday, July 01, 2006

Q is for quality

Hello again dear readers!

The World Cup is still going strong but I thought I would say hello.

A few days ago I noticed the current Qualcomm (QCOM) share price. Under $40! QCOM under $40 feels like dollar bills going for 80 cents. QCOM has fallen over 25% in the bear market of the last six weeks, despite a guidance upgrade on the 13th June.

QCOM is not a household name but in the sphere of mobile telecoms it is a giant. It has an absolute monopoly on the CDMA technology that enables 3G mobile phones. Europe uses a different 3G variant to Verizon but they are both QCOM technologies.

As 2G gradually becomes obsolete the sales of 3G phones must accelerate in the near term. This is basically what QCOM announced a few weeks ago.

What do the figures look like? I estimate pro forma earnings of $1.70 for CY2006. That is a 2006 PE of 24. The growth in the last quarter year on year was 40%. Then there is a dividend yield of over 1% and an ongoing $2.5 billion stock repurchase program. The picture looks pretty rosy.

Ooops my time is up.

Come on England!