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  • Re-Examining My Long Position On Corning After Earnings [View article]
    Few would disagree with the potential for earnings growth from a diversity of new or improved products. I see three main causes of its current, relatively low price.

    1. Going back some 20 years, Corning was embroiled in breast implant product liability lawsuits filed against its Dow-Corning joint venture. Despite the fact that the lawsuits were either dismissed or settled to the advantage of Corning (very few resulted in judgments against the joint venture), GLW shares took a beating, from which they still haven't recovered completely. The precedent here is the hit taken by Johnson & Johnson after discovery that some of its containers of Tylenol had been tampered with, leading to a recall of all Tylenol containers and replacement free of charge. The efforts were extraordinary, and ethical, but JNJ shares lagged the market for better than 20 years.

    2. As pointed out in the most recent conference call, price declines in LCD display glass were modest, and apparently less than efficiencies that improved product margins, including the introduction of even thinner glass. The major cause of low profit margins, however, was the weakness in the Japanese yen, relative to the dollar. Over the last few years, the yen has declined from about 78 to 124 to the dollar. Because Corning has substantial investments in Japan, with significant production of display glass, the dollar denominated value of its sales has declined, leading to weak profit margins, albeit from increasing sales.

    3. Despite rapidly growing unit sales of Gorilla glass for smartphones and tablets, Corning shares a problem in common with other component suppliers to this sector. If you look at the companies supplying modem and processor chips, memory chips, etc., what you see is that Apple, the largest buyer of components (other than Samsung, which makes most of its own), is the only company making a lot of money. The suppliers, eager to get a big contract from Apple, get squeezed. Corning is no different. The future for suppliers is predicated on there being several big customers (maybe the newer phone companies like Huawei and Xiaomi, cutting into Apple and Samsung sales, will help) in order to increase overall demand.

    Corning, nevertheless, remains a reasonably good investment at its current price, notwithstanding the above constraints.
    Jul 30, 2015. 01:02 PM | 3 Likes Like |Link to Comment
  • Interview With Energy Recovery CEO Joel Gay [View article]
    Very good summary for what can only be considered a long term investment. Having monitored the company for several years, I wonder whether it is vulnerable to a takeover, especially for the portion of the company that addresses the oil and gas sector.

    Disclosure: Long on ERII, but with a relatively modest investment.
    Jul 29, 2015. 12:39 PM | 1 Like Like |Link to Comment
  • Qualcomm Should Consider Buying Into Some Of Its Rival Chipmakers [View article]
    Qualcomm is the world's largest seller of modem chips for wireless phones and tablets, with greater than a 60% market share. Buying other chip companies, or even taking a major position in a competitor would trigger antitrust investigations. Qualcomm has the largest number of essential patents for modem chips and derives royalty revenue from companies using other than Qualcomm chips.

    Qualcomm is also a major producer of processor chips for cell phones, as a licensee of ARM Holdings, whose basic designs are also incorporated into chips produced for Apple, Samsung, and other firms. Because there is a great deal of competition in this segment, margins tend to be low.

    A restructuring of the company might lead to monetizing some of Qualcomm's valuable patents, most of which have a value of zero on the balance sheet. With all that patent muscle, it is somewhat ludicrous to believe that Qualcomm would be better off buying someone else's technology. Monetizing its own patents, yes. Buying someone else's, except to cover areas that Qualcomm doesn't already reach, is unnecessary.
    Jul 28, 2015. 02:09 PM | 1 Like Like |Link to Comment
  • Use Earnings To Buy Cheap Chevron Shares [View article]
    The key supply variable for world market oil prices is not Iran, as noted above, but overall demand, which currently is sluggish due to lower economic growth in China and the European Union. Growth in oil demand is tied both to petrochemicals and to transportation uses. Growth in gas demand is tied to the relatively low capital cost for gas fired electric generation and to substitution of lower polluting gas for coal.

    Even with lower worldwide economic growth, caused in part by too much austerity in fiscal policies in many nations, the outlook for increased oil and gas demand is reasonably good for the next two to five years. Seen in this perspective, it's likely that Chevron will be able to profit from its long term oil and gas investments, especially the Gorgon LNG project, and will perform at least as well as its peers.
    Jul 28, 2015. 01:34 PM | 5 Likes Like |Link to Comment
  • ISIS Pharmaceuticals: Another Entry Point [View article]
    Very comprehensive analysis, but there's even more to be optimistic about. Antisense technology, the core of ISIS research, allows ISIS to use similar methods to create new drugs, thereby cutting overall costs more than would be the case with a more conventional "Clint Eastwood" approach (fire in the direction of the barn door and hope something hits).

    The efficiencies inherent in the research plan allow ISIS to develop more drugs than comparable companies of similar size, reducing the downside risks if one or more drugs should prove ineffective. Without this approach, ISIS would resemble the typical "story" stock with much higher attendant risk.
    Jul 28, 2015. 01:09 PM | 6 Likes Like |Link to Comment
  • Qualcomm: Why I Just Bought Shares Of This Cash Machine [View article]
    "If you look at qcom's patent you will notice most of the 2g and 3g phones have to pay them. For the 4G that % has gone down from the 3G. All smartphones that support 4g also support 3g and 2g."

    Several misconceptions here. Many firms have useful and/or essential patents for 4G, including Qualcomm. Qualcomm in particular has directional antenna technology, acquired from Flarion, which enables the efficiency of waveband use in 4G to be about 4 times better than without using these patents. So as long as 4G exists, Qualcomm will get royalties. And remember also that it takes only one claim on one patent to justify a licensing and royalty agreement.

    Thus, it is not correct to imply that Qualcomm will generate royalties from a lower percentage of 4G devices. What would be correct, and is already the case, is that Qualcomm previously charged a lower rate for 4G royalties than for the rest of its patent portfolio, owing to the higher percentage of 4G patents held by others.

    It is also incorrect that all 4G phones also support 2G and 3G. It has been difficult for modem chip producers – notably Intel and MediaTek – to make a single chip that is compatible with 2G, 3G, and 4G in all varieties. In fact, Qualcomm so far is the only chip designer that has complete compatibility, including the Chinese TD-SCDMA, and including all bands in the spectrum. Designing a chip that works on all frequencies, with all systems used by service providers is not an easy job, as Intel has discovered.

    Given that Qualcomm has been able to attract highest quality skilled engineers, it shouldn't be assumed that its more than 17,000 patents relate only to 2G, 3G, or 4G. The company has anticipated several new trends early enough to establish a foothold in areas such as medical monitoring, automotive, machine to machine, small cells, and wireless battery charging for everything from phones to cars. Don't underestimate their research.

    Finally, it's worth mentioning that the latest earnings statement indicates that cash and marketable securities exceed the book value of the entire firm. Put another way, the current shareholder equity figure of $33 billion values all the tangible property of the company, including 17,000 patents, at zero! Stock going down? I don't think so.
    Jul 28, 2015. 12:53 PM | 2 Likes Like |Link to Comment
  • Flowserve Should Buy Energy Recovery Inc. [View article]
    The payoff for non-desalination products of as little as 6 months, mentioned above, relates to the payoff for the buyer or lessor of the equipment, I believe. In other words, the presentation last year in New York noted that these products would save their users significant amounts in a short time. Given the amount that ERI has invested in developing these products, I think the payback for ERI will be much, much longer.

    I also believe that oil and gas exploration and development companies, despite their boasting about being innovative, are essentially very conservative in adopting new methods, as ERI management also believes. Regarding the Conoco issue, the situation there may have more to do with suspending certain operations at a time when oil and gas prices are low, rather than giving up on possibly more efficient ways of extracting oil and gas. The fact is that low crude oil and natural gas prices work against new drilling activity, limiting near term demand for ERI products.
    Jul 28, 2015. 12:20 PM | Likes Like |Link to Comment
  • Qualcomm: Why I Just Bought Shares Of This Cash Machine [View article]
    Qualcomm is already rewarding shareholders with increases in dividends, stock buybacks, and now a possible, perhaps gradual cut in its workforce. What many tend to forget is their very large number of essential patents for wireless communications. It is impossible to sell a smartphone for any market in any part of the world today that does not make use of Qualcomm patented technology. This will be the case for many years to come, even if the whole world switches to some form of 4G, where Qualcomm, though a major player, is not the sole player (in terms of patents).

    It's not just a matter of future royalties or future chip sales. Qualcomm also has strategic investments in China (e.g., the rapidly growing Chinese firm Xiaomi) that are likely to grow even faster than overall royalty payments.
    Jul 27, 2015. 10:57 AM | 3 Likes Like |Link to Comment
  • What's Qualcomm Worth As Two Separate Entities? [View article]
    QTL licenses technology developed in-house by QCT or outside acquisitions. QCT is research oriented and provides designs for Qualcomm chips, such as the Snapdragon, or reference designs that QTL licenses to other firms. Licensing and royalty agreements typically generate gross margins over 90%, but for Qualcomm, it's about 86% because of litigation and related costs. QCT has much lower margins, but this is due in part to their overall r&d costs, which include work on projects that so far have generated little or nothing in revenues.

    The work on wireless battery charging for electric vehicles, for example, is a genuine research cost, but so far there is no return whatsoever. It is clear that the licensing business depends significantly on QCT, but what's less clear is where QCT efforts should be directed. Qualcomm over the years has engaged in projects that do not always lead to any return on investment. Rather than sell or spin off QCT, the company needs to focus more on its primary objective of designing improved methods for wireless communication.

    Qualcomm could consider retaining that portion of QCT involved directly with designing improvements in baseband modem, processor and related chips, and then create a new company, which could be spun off, to work on other technologies with less direct impact on wireless communications.
    Jul 24, 2015. 12:15 PM | 4 Likes Like |Link to Comment
  • How Do You Solve A Problem Like Qualcomm? [View article]
    "Given that the handset market is increasingly looking as though its great growth days are past . . ."

    Well, not exactly. In fact what is occurring, especially in faster growing developing nations, in Asia, Africa, and Latin America, is that smartphones are often the only computing device a user can afford. That's partly why PC demand has been sluggish when smartphone demand is soaring.

    Fast growth demand in smartphones is subsiding in industrialized nations in Europe and North America but is picking up in India and elsewhere. Growth in demand in higher priced smartphones may be dropping, but now some lower cost Chinese phones are entering the market. Virtually every smartphone sold anywhere in the world generates royalty revenue for Qualcomm from more than 17,000 patents. In this respect, Qualcomm is more like the old RCA Corp. which held the majority of essential patents for AM radio for some 50 years, and which also had a dominant position in TV proprietary technology for more than 20 years.
    Jul 23, 2015. 07:46 PM | 1 Like Like |Link to Comment
  • Despite Recent Earnings, SanDisk Is Not The Best Investment Right Now [View article]
    SanDisk policy for more than ten years is to operate at full capacity, buying extra wafers from firms like Samsung if demand exceeds their own captive supply facilities. That's what gives SanDisk higher margins than most, if not all its competitors, but it also limits growth. In recent quarters, due mainly to loss of a major customer, SanDisk didn't operate at full capacity, and sure enough, its margins dropped -- this time to 39%, which is still far above margins for Micron, a major competitor.
    Jul 23, 2015. 07:12 PM | 1 Like Like |Link to Comment
  • Qualcomm: What Massive Job Cuts Mean For Long-Term Investors [View article]
    The statement that ". . . there are no major shifts occurring within its business/industry" needs to be examined closely. Numerous shifts have taken place in the industry as it moves from 2G and 3G to 4G and possibly 5G. Qualcomm has the bulk of essential patents for 3G, along with CDMA related patents for 2G. Qualcomm also has essential patents for 4G, especially the antenna patents acquired when Qualcomm bought Flarion a few years ago. Qualcomm is still years ahead of its competitors in baseband technology (modem and related chips). And virtually all smartphones built today depend at least in part on some Qualcomm patented technology.

    The company could easily sell off at least part of its chip technology section that deals mainly with 2G and 3G technology. That strategy would be akin to the earlier sale of OmniTRACS, a division that made the first satellite communications products that were installed in truck fleets (and provided key financing for CDMA r&d). Put another way, Qualcomm could consider cutting back on some of its r&d without permanent injury, because communication technology is changing to the point where no single company has the majority of patents, as QCOM had with regard to CDMA and its derivatives.

    Apple, by developing its own ARM based processor, is able to make its phones and tablets unique, and not compatible with other ARM based processors, such as the Snapdragon series made by Qualcomm, or the various models introduced by MediaTek. This gives Apple some control and exclusivity that helps retain existing customers. However, it creates a problem for Apple, in that Apple cannot make a combined system on chip, housing both the modem and processor, as Qualcomm does for the majority of its customers. An SoC consumes less power and takes less space, and in fact may be less expensive than separate components with comparable performance. Qualcomm SoC design is more advanced than that of Samsung or MediaTek, which helps explain why the Galaxy Note 5 will have a Snapdragon SoC instead of one made by Samsung.

    Intel faces the same problem with its processors, based on what is almost an archaic x86 architecture. The Intel chips require separate baseband chips. The only integrated chip Intel provided so far did not have the ability to work on all frequencies/bands, as required for virtually all smartphones made today – CDMA, WCDMA, Edge, and 4G in two varieties, as well as TD-SCDMA in China. Intel really has nothing to compete with a Qualcomm SoC.

    Meanwhile, there are numerous new pathways requiring new chip designs -- for automotive, health monitoring, machine to machine, and the Internet of Things. Qualcomm, now the largest employer in San Diego, increased the number of its employees about fourfold in a period of ten years, to its present level of 31,000. It's very likely that portions of the workforce can be cut or transferred to a new company separate from Qualcomm, and without damaging the firm's core mission, which is designing better and more efficient ways to communicate wirelessly.

    So I take issue with the notion (unproven, to say the least) that cutting back on the number of employees (over time, not immediately) can wreck a company. In fact, it can help redirect the company into more productive avenues.
    Jul 23, 2015. 01:09 PM | 10 Likes Like |Link to Comment
  • Why Job Cuts Are Bad For Qualcomm [View article]
    "Cutting this jobs is like chopping off a tree's roots . . ." Or it could also be seen as cutting off the dead wood on the branches.
    Jul 22, 2015. 02:18 PM | Likes Like |Link to Comment
  • Why Job Cuts Are Bad For Qualcomm [View article]
    Why publish speculative views when many of the answers will be revealed by Qualcomm at its third quarter conference call, scheduled in less than 24 hours from now?
    Jul 21, 2015. 05:06 PM | 5 Likes Like |Link to Comment
  • Regulatory Issues Will Put Pressure On Qualcomm In The Short Term [View article]
    I agree completely with the writer's disclaimer that he is not an investment advisor. His understanding of current antitrust issues is at odd with the facts: There is no accusation of anticompetitive business practices either by the European Union or the Korean fair trade commission. They are studying issues, but that's a lot different from pursuing an antitrust action.

    As to possible restructuring changes, including layoffs, that would lead to one-time severance and related costs but might also create an organization with greater revenue per employee, and thus, more market demand for a reduced number of shares. Until such a restructuring takes place, Qualcomm is more like the old RCA Corp., which held the bulk of AM radio and TV essential patents, beginning in the early 1920's and continuing through the 70s. Qualcomm holds the bulk of CDMA related wireless communication patents and many essential 4G patents, ensuring dominance in intellectual property for several years. In addition, its R&D extends to related fields, including wireless battery charging for vehicles and a number of applications relating to machine-to-machine, the Internet of Things, and controls for driverless vehicles.

    Disclosure: Long on QCOM, registered investment advisor for 34 years, owner and publisher of the first computer accessed investment advisory service.
    Jul 21, 2015. 04:53 PM | 2 Likes Like |Link to Comment
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