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  • SanDisk: Buy On The Drop? [View article]
    It appears that many investors have not considered several factors that make a compelling case for SNDK being undervalued:

    1. If SanDisk management implements its earlier decision to buy back about 15% of its outstanding shares, the resulting earnings per share will show less drop than the estimated drop in net income.

    2. The recent ruling against Netlist in its lawsuit against Diablo Technologies (now owned by SanDisk) paves the way for SanDisk profits from its superior UltraDIMM technology for enterprise servers.

    3. The ruling against Hynix, won by Toshiba for a case involving an employee at the Toshiba/SanDisk joint venture for disclosing trade secrets to Hynix in return for a job, led to an award to Toshiba of $250 million. The SanDisk litigation against Hynix, currently in court, should likely produce at least $500 million, including lost sales resulting from illegal disclosure of trade secrets. Note that Hynix, using technology from the Toshiba/SanDisk facility, was able to replace SNDK in the new model Apple iPhones.

    4. The drop in the value of the yen in relation to the dollar has been much greater than the slight devaluation of the Korean won. SanDisk's higher profit margins are due partly to superior technology and partly to this favorable rate of exchange as it impacts worldwide demand for SanDisk flash products made in Japan.

    5. In terms of overall product margins, SanDisk still is the leader in its field. Margins at Micron Technology, for example, are less than half those at SanDisk. This gives SanDisk a pricing advantage, allowing it to maintain full production with resulting economies of scale. In the past, SanDisk bought extra capacity from Samsung, preferring that strategy to increasing the size of its own plants. This non–captive production, however, generated much smaller profit margins. At the very least, under conditions of lagging demand, SanDisk can simply reduce its non–captive purchases, thereby IMPROVING overall profit margins.

    Finally, when company shares drop of the order of 20%, on 8 times normal volume, one should recognize the high probability that this kind of panic selling creates a buying opportunity (!).
    Mar 27, 2015. 01:31 PM | 3 Likes Like |Link to Comment
  • Why It's Hard To Be Optimistic About Chevron [View article]
    Is demand for oil elastic? That is, do lower oil prices automatically increase demand? The problem is that oil prices are only slightly elastic, meaning that even lower oil prices won't necessarily increase demand.

    Look at the situation in China, where oil consumption has been growing faster than in most other places. Chinese gross domestic production growth is falling, and even though oil prices are lower, China isn't making up for the lower oil prices by importing more.

    Eventually oil prices will rise because growth in demand worldwide still exceeds the growth in proved resources. That's the key factor to watch here. Chevron is similar to many other major oil companies in abandoning or postponing projects where the cost of developing new reserves exceeds the selling price of oil or gas at current prices.
    Mar 25, 2015. 01:20 PM | Likes Like |Link to Comment
  • Qualcomm May Not Fully Benefit From India's Shift To 4G [View article]
    The wording in this article gives one the impression that if MediaTek sells chips in India, Qualcomm will lose business. Chip sales maybe, but EVERY LTE device made for sale in India or elsewhere uses Qualcomm patents and generates royalties for Qualcomm.

    A second issue centering on specific types of uses for wireless phones and tablets, is not even mentioned but is nonetheless important. Qualcomm has a long history of designing combined modem and processor chips to do certain jobs well, at low cost. Qualcomm, because of its scale of operations, is able to customize its designs to meet specific customer needs. Smaller companies, such as MediaTek, may not be able to customize their chips to the extent that Qualcomm does and as a result may not be as competitive in certain markets or price ranges.
    Mar 24, 2015. 12:40 PM | 15 Likes Like |Link to Comment
  • Qualcomm Investors: Time To Cash In Your Chips [View article]
    Regarding the issue of collecting royalties on devices that use TD-SCDMA, many Chinese firms were convinced that the technology, developed from IP contributed by Siemens, did not infringe on Qualcomm's CDMA technology. Qualcomm always disputed this but had little leverage to enforce its claims because TD-SCDMA devices were aimed at a domestic Chinese market, and it was difficult to obtain sales data that might show who was selling the equipment, and how much they were selling. TD-SCDMA, meanwhile, after being implemented on a large scale, was shown to have inherent defects that made it impractical for widespread application. LTE, or 4G sales, however, regardless of whether the version being used (the Chinese version is slightly different from the version adopted by service providers in the U.S. and elsewhere), can be monitored more easily than TD-SCDMA simply because a lot of the devices will be exported, and domestic sales by the exporting firms can be imputed, if not accurately monitored.

    My impression, based on attending two Qualcomm analyst day meetings in New York, is that Qualcomm did not have much expectation of collecting royalties on TD-SCDMA equipment, but since that technology is dying out, the important thing is to be able to collect on LTE devices. It appears this will be easier to do, now that the agreement with Chinese regulators has been concluded.

    Qualcomm has considerable investment in China, apart from its licensing agreements. It has set up a research facility and contributes regularly to scholarship funds for Chinese students. Qualcomm also bought shares in Chinese firms, among which is Xiaomi, in which Qualcomm appears to have about 8% ownership. Xiaomi is now the third or fourth largest cell phone maker in the world.

    In short, the income Qualcomm derives from its presence in China, not just from licensing agreements, is likely to increase substantially.
    Mar 24, 2015. 12:27 PM | 1 Like Like |Link to Comment
  • Intel Inside The Luxury TAG Heuer Android Smartwatch [View article]
    Very interesting discussion. Apple effectively limits its market to iPhone users, which opens up a market for non–iPhone users. Apparently the utility of a smart watch is its ability to monitor ongoing health related data generated by the wearer, along with a selection of wireless type communications. I don't see Apple having a monopoly on what its watch can do, but I also don't see evidence that its potential competitors are any closer to a really practical and innovative smart watch.
    Mar 23, 2015. 03:55 PM | Likes Like |Link to Comment
  • Qualcomm Investors: Time To Cash In Your Chips [View article]
    "Buybacks usually signals optimism for the future, but this very well may be Qualcomm management trying to artificially boost numbers. It is highly questionable as to why they chose to invest in the capital return program at this point in time, when both of their core business segments are under siege."

    Buybacks also may be implemented because the share price is low. What makes it low? First, a lot of rumors and bad mouthing by competitors (Samsung, Intel) intent on grabbing a piece of the action from Qualcomm. Second, a lot of misconceptions about what kinds of chips Qualcomm sells. There are five QCOM chips in the latest iPhone models – not just the modem chip, but chips that govern power management, voice coding/decoding, etc. In fact, the only major chip that Apple doesn't buy from QCOM is the processor, which Apple designs itself, built on ARM designs, just as QCOM chips are. But the fact that QCOM sells far more processor chips to the entire industry than does Apple make for its own use suggests that QCOM can price its chips competitively, based on economics of scale.

    Third, the article fails to mention that Qualcomm has perfected two lines of lower priced processor chips that are combined with modem chips suitable for developing nations where most consumers can afford only lower priced phones. These markets aren't even addressed by high end Apple phones but are sought after especially by newer Chinese companies seeking to enter new export markets. Many of these Chinese companies are using QCOM chips simply because they are competitively priced and have better, more reliable performance characteristics. Of course, as the article mentions, the average selling price of these phones is lower. But the volume is much, much higher because these are new smartphone markets, not replacements for existing subscribers.

    Finally, there is a misconception about LTE royalties. LTE is a technology in which numerous companies other than Qualcomm have important intellectual property. From the time that LTE was first incorporated into smartphones, Qualcomm offered lower royalty rates for customers who wished only to use QCOM LTE technology, not other (e.g., CDMA, WCDMA) wireless related patents owned by QCOM. Yet for LTE, Qualcomm has many essential patents, including directional antenna patents acquired from Flarion several years ago. It is unlikely that any smartphone manufacturer offering equipment designed for LTE services would be able to compete on world markets without using Qualcomm LTE patents. It makes little difference whether the pertinent chips are made by Qualcomm or by a competitor, which might include Mediatek, Spreadtrum, Samsung, or Intel. The royalties generated for QCOM will continue to be substantial, which explains why, after the agreement with Chinese regulators, Qualcomm was able to increase its revenue and earnings guidance for the rest of the fiscal year.

    So it is more than likely that Qualcomm is buying back stock now (either directly or, as they've done previously, by selling put options) because the stock is cheap.
    Mar 20, 2015. 01:38 PM | 4 Likes Like |Link to Comment
  • Why Corning Is Poised To Beat The S&P 500 This Year [View article]
    Corning is a lot more than just a producer of Gorilla Glass, which still amounts to a relatively small percentage of total revenues. In the past, LCD display glass for TV was a major factor for earnings, and depressed prices of TV glass explained most of the relatively weak earnings.

    Seems to me that one cannot determine whether a stock like GLW is undervalued unless one looks at the whole product lineup -- smartphone and tablet displays, laptop and larger computer displays, TV glass, substrates for catalytic converters, especially for diesel fuel engines, etc. Hint: Maybe Corning is more undervalued than you think.
    Mar 19, 2015. 01:55 PM | 6 Likes Like |Link to Comment
  • Intel Inside The World's Possibly Most Powerful Android Phone [View article]
    "A little contra revenue to encourage Xiaomi to use Intel processors is justified." That sounds more like predatory pricing than anything else. If pricing below cost makes Intel chips attractive to smartphone manufacturers, one must ask whether the chip itself, if sold at a profit, would still be in demand.

    Additionally, the writer didn't touch on the price of Qualcomm's reference design, using the lower cost Snapdragon 400 series, which may beat Intel's chip both in specifications, performance, and price.

    The constant press releases from Intel, however, which are copied or paraphrased by many investment analysts, are having an impact on the price of QCOM shares. Was that the intended purpose?
    Mar 18, 2015. 01:29 PM | 3 Likes Like |Link to Comment
  • Why It's Hard To Be Optimistic About Chevron [View article]
    Chevron's biggest capital project by far is Gorgon, which is intended to produce natural gas for export (in liquid form). Natural gas prices on the world market have not declined proportionately to oil prices. World prices for natural gas are higher than in the U.S. Chevron's Gorgon facility will very likely be far more profitable than any new facility for oil. Put another way, the profits for natural gas, measured by oil equivalents, will be much greater than profits for the same amount of oil production.

    Although low crude oil prices will cut into CVX earnings, the overall outlook for the company, especially in view of its Gorgon facility, is not all that pessimistic.
    Mar 18, 2015. 12:55 PM | 2 Likes Like |Link to Comment
  • Intel Has Given Dividend And Income Investors A Gift: Qualcomm [View article]
    Whatever data you use to reach those conclusions are highly questionable. I suggest you contact Thomas Piketty on how to assemble time series data. If you haven't heard of Thomas Piketty, you might read his book, "Capital in the 21st Century," probably the most significant work published in several years.

    I'm not sure how your notions (I resist giving them the credibility of theories) affect stocks like Qualcomm, which does have something to do with increasing demand for wireless communications, and the patents that Qualcomm owns. Even if prices of many key stocks remained flat or declined, it would not necessarily be a signal that somehow Qualcomm is about to lose business from flagging demand for its cutting edge technology.

    You might also examine Qualcomm's financial reports, which show that its book value comprises mostly cash, and that a large percentage of its patent portfolio has no book value (other than intrinsic value). If that isn't bullish for QCOM (prior to your hypothetical date of 2019), I don't know what is.
    Mar 18, 2015. 12:43 PM | 1 Like Like |Link to Comment
  • Why It's Hard To Be Optimistic About Chevron [View article]
    Chevron has made very good decisions to cut or abandon projects that would bear little if any profit at present oil prices, or which are hampered by politically unstable government situations (Chad, Ukraine, etc.). It would appear that executives at Chevron and ExxonMobil understand that low oil prices are temporary -- perhaps extending less than a year from now. From my own experience working in Muslim countries, it appears to me that the Saudis decided to increase production ostensibly to retain market share. But another real possibility (and very likely the main reason for increasing production) has been to prevent ISIS terrorists from financing their military campaigns by reducing the amount of funds ISIS gets from illegal oil sales. And meanwhile, the Saudi policy also creates hardships in Russia, which has been financing the Assad regime in Syria, and additional hardships in Iran, which is no particular friend of Saudi Arabia.

    One could predict, probably correctly, that a severe defeat for ISIS, coupled with an agreement from Russia to stop meddling in Ukraine would be followed shortly by a gradual cut in Saudi crude production and a recovery in crude oil prices to somewhere near $60/bbl. Meanwhile, major oil producers like Chevron can still generate the necessary funds for dividends and capital expenses through bond issues at historically low interest rates. Not a bad reason to hold Chevron for long term gains.
    Mar 16, 2015. 01:17 PM | 9 Likes Like |Link to Comment
  • Solazyme Closes The Year With An Arbitration Win For Its Intellectual Property [View article]
    With the Exxon CEO's recent comments expecting crude oil to bottom out at roughly $55 per barrel, $20/bbl is probably not going to happen. There are still a few major economies that continue to expand – U.S., China, India – fast enough to create more demand for oil at a time when sanctions are still imposed on Iranian supplies.

    The very fact that oil prices seem to influence the price of SZYM suggests that many investors are treating SZYM as an energy stock when in truth it is more of a consumer products stock, concentrating in cosmetics and food supplements. If SZYM is being treated as an oil stock, or even an alternative energy stock, then the share price is substantially undervalued. If SZYM is seen simply as another story stock, not yet profitable, with valuable proprietary technology, in an overall investment climate that suffers from fear and uncertainty, then the stock, though possibly undervalued, cannot be expected to move upward for several months (i.e., until they can actually show some operating profits from Clinton and Moema).
    Mar 16, 2015. 12:33 PM | 6 Likes Like |Link to Comment
  • Intel Has Given Dividend And Income Investors A Gift: Qualcomm [View article]
    Cash to pay dividends comes from cash held in the U.S. Most of Qualcomm's cash is held overseas. Repatriating that cash would occur at the 35% corporate tax rate. Likewise, repurchasing stock is done mostly with domestic funds, not those held overseas. The strategy that Apple used, and which Qualcomm now apparently intends to use, is to issue bonds, with the interest payments covered by repatriation of overseas cash. Those funds would be subject to the 35% tax, but because interest payments are deductible, there is no effective increase in the overall tax rate.

    Obviously, if a company engages in a major repurchase of its stock, that tends to raise, or at least stabilize the share price. In this case, it appears that QCOM will buy about 10% of its outstanding shares, and perhaps more, if the price remains at current low levels. The company could end up buying more by selling put options, as they've done previously. Money received from the sale of puts would go toward buying back stock. And even if the stock price didn't go up by option expiration date, QCOM would have made money on the loss of premium on the puts.

    In all of the discussion, some investors fail to realize that Qualcomm is considered one of the best managed companies in the entire tech sector. Good management, by definition, means that the company knows how to deal with problems that come up, whether it be loss of a modem chip customer or negotiating with foreign countries that would love to get a piece of that royalty money. Qualcomm has excelled in its management decisions over a long enough time to suggest that the company knows how to deal with the current situation – to the advantage of its shareholders.
    Mar 15, 2015. 08:46 PM | 3 Likes Like |Link to Comment
  • Intel Has Given Dividend And Income Investors A Gift: Qualcomm [View article]
    Intel, notwithstanding recent rumors, still hasn't demonstrated it has products that can compete successfully with similar unsubsidized Qualcomm products.
    Mar 13, 2015. 12:43 PM | 14 Likes Like |Link to Comment
  • Did Intel Just Take A Bite Out Of Qualcomm? [View article]
    Apple invariably seeks out multiple suppliers in order to get lower prices for key components. Because Intel has been trying, mostly unsuccessfully, to gain a foothold in wireless phone components, one can assume Intel gave Apple a very, very low price for an LTE modem chip, if indeed the rumor that Apple will use the Intel chip, is true.

    But the story is not as simple as merely substituting one modem chip for another. Apple, because it uses its own version of an ARM based processor, cannot achieve the efficiencies either in cost or in power consumption of combined modem and processor chips sold by Qualcomm. Apple undoubtedly realizes the need for some form of economy, so a bargain priced Intel chip might be just the ticket to remain competitive, at least in certain Asian and Latin American markets where lower cost Chinese made cellphones (often using the Qualcomm combined Snapdragon modem and processor chip) are making inroads.

    Even if Qualcomm doesn't sell the modem chip, it still profits from royalties on modem chips, no matter who makes them, owing to its ownership of essential patents for virtually all types of wireless communication. Bottom line is that Qualcomm is likely to suffer less than the recent price decline in its shares suggests.
    Mar 13, 2015. 11:45 AM | 4 Likes Like |Link to Comment
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