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  • Why I'm Betting On Qualcomm And Its Dividend - It's Only Chips [View article]
    The $15 billion, which QCOM management says it is going to spend on stock buybacks, works out to about 200 million shares at current levels, or about 12 percent of the outstanding shares. That's a lot greater than previous purchases and if actually carried out, beginning in the current quarter, would very likely place a floor under the stock. Short of a complete stock market collapse (not likely at the moment, anyway), QCOM shares have probably hit bottom. The weak earnings and guidance, however, suggest only a modest gain in the share price, unless there is a surfeit of good news later on this year. Fewer shares, of course, will help increase earnings per share.

    As a shareholder since early 1992, and as an investment advisor, I believe that Qualcomm still represents one of the best long term growth opportunities for most investors. Here's why.

    1. They own the bulk of patents for wireless communication, including essential patents for all types of fourth generation LTE voice and data services. This assures a royalty stream for several years, no matter who makes the chips or other components.

    2. They are able to produce combined modem and processor chips customized to individual needs at price points across the spectrum, whether for high end or low end customers, at a scale of economics that makes them competitive even with new Chinese companies entering the market.

    3. Their chip designs feature low power consumption and generally high performance, though not necessarily exceeding the performance of some competitors. On the front end (the modem chips), they have about 80 percent market share, owing to the fact that they are so far the only company with a chip compatible with all existing service provider systems, including those in China.

    4. They are able to leverage their smartphone research and development to new applications, including automotive, health monitoring, and control of appliances at home or business, thereby positioning themselves for future growth in markets other than smartphones and tablets.

    5. The management quality is one of the best in the sector, in terms of engineering skills and timely certified financial statements. Guidance tends to be on the conservative side. In the past, the company has been overcapitalized, but the current buyback and dividend policy should take care of that.
    Apr 24, 2015. 01:19 PM | 1 Like Like |Link to Comment
  • Recent Buy: Qualcomm [View article]
    With almost $15 billion available for stock buybacks, that would come to more than 200 million shares at current prices. That's a lot more stock than is used for stock options. And the company appears to be reducing their former generosity in stock options (maybe even more after the latest earnings).

    Fact is that Qualcomm is overcapitalized. A company needs cash to finance ongoing expenses, plus new investments, all of which for Qualcomm are much less than its combined cash and marketable securities. Apple took Carl Icahn's advice and bought back shares and raised its dividend in order to reduce its own overcapitalization. Now Qualcomm appears to be ready to do the same thing -- issue bonds, backed by its cash held overseas, repatriate some of that cash to pay interest on the bonds, and use the money from the bond issue to buy back more stock. With interest rates at historic lows, and considering that interest payments are tax deductible, the total after-tax cost to Qualcomm more than covers dividend payments and boosts earnings per share, based on fewer shares.

    In general, there is little reason for a company to have zero, or near zero long term debt, especially when the company is in an industry that is expanding more rapidly than most other sectors. A ratio of equity to debt of 2 to 1 is reasonable (and normal), even for mature companies with slowly expanding markets. As long as Qualcomm maintains a business plan that calls for other companies to make its chips (and therefore, other companies doing the capital investment in chip fabs), there is no reason to have so much cash. In fact, all that cash can motivate executives to spend recklessly on peripheral projects that have little to do with the basic business (example, the Mirasol display, which sent a cool $1 billion or more down the drain).
    Apr 24, 2015. 12:28 PM | 2 Likes Like |Link to Comment
  • What's Wrong With Qualcomm [View article]
    The analysis is incomplete because it fails to consider combined modem and processor chips for lower cost smartphones (Snapdragon 400 and 600 series) and the fact that Qualcomm front end chips are superior to those made by Samsung and others. Qualcomm so far is the only company to offer complete compatibility with all existing service provider networks worldwide, including China.

    Intel's current offering includes a modem chip ONLY for LTE, which is hardly good enough to break into a market where 3G and 4G systems are widespread.

    The weakness in performance of Qualcomm's Snapdragon 810 is related to the fact that the 810 uses an ARM design without modification. Older Snapdragon models were designed by Qualcomm. The new 820 model, which will be ready later this year (probably not before next fall) appears to have exceptional performance, with a lot of features not available on any other processor chips, no matter who makes them.

    The writer also ignores the fact that many other chips go into smartphones, other than modem and processor chips, and Qualcomm makes many of those chips, which go into Apple and other smartphones. Power management chips, for example, are a part of the package, not just modems and processors.

    Of course, firms like Samsung are able to design and manufacture chips that are as good as anyone else's. The Exynos processor in the Galaxy S6 appears to be a good performer, judging by the reviews, but it isn't clear whether the Exynos draws more power than the Snapdragon. It is also a fact that virtually no company today can design and sell a smartphone modem chip without paying royalties to Qualcomm.

    So the question remains, why do so many analysts dump on Qualcomm?
    Apr 24, 2015. 12:05 PM | 8 Likes Like |Link to Comment
  • Here's Why Qualcomm Should Spin Off Hardware [View article]
    It's not clear that Samsung's Exynos processor is built with 14 nm technology. What is clear is that Samsung's lower growth in smartphones left them with excess chip capacity and motivation to use their own processor, instead of Qualcomm's.

    There's also an assumption implicit in the article that Qualcomm's chip business deals mainly with processor chips. In fact, the modem chips command the largest proportion of sales for smartphones and tablets -- more than 80% market share. Other chips designed by Qualcomm and built currently by Taiwan Semicoductor include power management and transceiver functions. in short, getting rid of the chip business on the assumption that other processors from Samsung or Apple are just as good is simply nonsense.
    Apr 23, 2015. 12:39 PM | 7 Likes Like |Link to Comment
  • Recent Buy: Qualcomm [View article]
    I began investing in QCOM in early February 1992. It's one of the best long term investments I know of, considering especially its strong finances. Over the past 10 years, there certainly are many stocks that have performed better than Qualcomm, but generally at greater risk on the downside. The large cash position maintained by the company over the years has had a negative impact on earnings growth, but again, the lack of long term debt has reduced downside risk.

    Looking ahead, the primary reason for owning the shares rests in its 17,000 + patents, which virtually guarantees a robust flow of royalties over the next several years. Many of these patents are categorized as essential, meaning that it would be difficult to sell a smartphone without using at least some QCOM patents.

    Many analysts have soured on the stock, but for the majority of individual investors, Qualcomm still represents one of the best long term opportunities.
    Apr 22, 2015. 06:15 PM | 2 Likes Like |Link to Comment
  • Samsung S6 And iPhone 6 Successes May Be A Pain For Qualcomm [View article]
    Linking Qualcomm's future to the Samsung S6 is simplistic, to say the least. Though some data show the S6 is selling like hot cakes, as the writer noted, overall demand for Samsung phones subsided enough during the last two quarters to create the kind of excess chip making capacity at Samsung that would justify replacing the Qualcomm Snapdragon 810 chip with its own. Purported heating of the chip was an excuse intended for public consumption. Given the popularity of the Snapdragon 810 in phones being sold by Chinese firms, it is doubtful that the 810 was the problem.

    The writer completely ignores the royalties paid to Qualcomm by virtually ALL manufacturers, whether or not they use Qualcomm chips. That's because Qualcomm owns by far the largest number of essential patents for wireless communication, including the latest 4G LTE systems.

    It is generally acknowledged that the growth rate for smartphones is declining somewhat (not overall sales, but the growth rate). This fact would suggest that Qualcomm earnings growth (the rate, not the total growth) might be lower as well, were it not for the large scale stock repurchases that Qualcomm announced earlier. The effect of these stock buybacks so far is to place a floor under the stock, suggesting that, short of a collapse of the entire stock market, the price of QCOM shares will have virtually no downside risk below the present price.
    Apr 21, 2015. 05:06 PM | 2 Likes Like |Link to Comment
  • Solazyme Gains A Foothold In Oilfield Services With Flotek And Flocapso [View article]
    I attempted to contact SZYM officials last week but had difficulty getting any new information about production at Moema. Apparently they are still well below design capacity. Despite the promising news of collaboration with Flotek, what really counts is how much stuff they can make on a regular basis from both Moema and Clinton.

    Though I'm long SZYM, I doubt the shares will move appreciably up or down in the next few months.
    Apr 21, 2015. 12:14 PM | 2 Likes Like |Link to Comment
  • How Corning Will Continue To Grow [View article]
    Corning is a lot more than a "one-trick pony." It continues to be the largest manufacturer of fiber optic cable and connectors -- a business that started long before display glass for TV or smartphones and laptops. Recent reports indicate that Verizon and others are intent on building fiber optic networks to compete with cable TV. This would be a really big addition to GLW revenues if it materializes.

    Meanwhile, the company has a strong financial position, is well managed, and continues to invent new ways of making and using glass. What's not to like?
    Apr 21, 2015. 12:01 PM | 1 Like Like |Link to Comment
  • How Corning Will Continue To Grow [View article]
    Pricing pressure on TV glass has held back earnings for several years. The increasing popularity of HD and larger size displays is soaking up the earlier glut and helping improve GLW earnings. I think there's been too much emphasis on the extent to which Gorilla glass contributes to earnings, even though GG contribution is rising. There are many other profit centers, including the somewhat dormant market for fiber optic lines, now also reviving. Seems to me that the management has placed itself in an ideal position to take maximum advantage of rising demand in each one of their segments.
    Apr 16, 2015. 10:54 AM | 2 Likes Like |Link to Comment
  • Sell Qualcomm After Being Dropped From The Galaxy S6 [View article]
    Steve, regarding your point #1, Intel does pay royalties to QCOM through its purchase of Infineon, which used to provide the modem chip for earlier model Apple iPhones. To the extent that Intel also has working arrangements with Chinese firms making chips that use QCOM patents, the royalties to QCOM get paid one way or another.

    Qualcomm is primarily a design type firm, inasmuch as it contracts out its chip designs to other chip fabs, such as Taiwan Semiconductor and possibly the new Global Foundry facility. Qualcomm doesn't yet use Samsung facilities for chips, probably because Samsung hasn't yet perfected the process for making 3D or extremely small nm chips of the sort QCOM is interested in.

    Where the writer of the subject article gets it wrong is that Qualcomm, in the interest of supplying a fast processor chip on time, decided to use an ARM reference design without modification for the Snapdragon model 810. The resulting chip, according to some writers, had a heat problem under certain conditions (not most conditions under which it would be used). But the main reason Samsung didn't want the chip was because it had excess capacity, caused in part by slower than expected demand for Samsung smartphones.

    Meanwhile, Qualcomm brought out new, lower priced processor chips (the 400 and 800 series) that compete well with chips from Mediatek and others. And the newest Snapdragon 820 chip, which is to be available later this year, uses a Qualcomm design modifying the ARM chip designs and is faster and has no heating problem when compared to other high performance chips, including those designed by Intel and Apple.

    Given Qualcomm's ability to produce numerous chip models to meet several different price points, and in quantities sufficient to achieve economics of scale, it makes no sense whatsoever to argue that the loss of a chip for one Samsung model discredits Qualcomm as a long term investment.
    Apr 13, 2015. 12:45 PM | 1 Like Like |Link to Comment
  • Sell Qualcomm After Being Dropped From The Galaxy S6 [View article]
    Good points, Steve. It should now be clear from statements by Samsung and others that Samsung's main motive in choosing its own processor for the S6 and a non–QCOM modem for at least one model of the S6 was dictated by excess chip capacity at Samsung, and the need to keep its chip fabs running at capacity in order to compensate for falling smartphone profits.

    And it's also clear that many newer Chinese companies are relying on QCOM chips because they work well, are reasonably priced, and compatible with the numerous service provider networks worldwide. As the Chinese firms pick up more business in world markets, it appears to be mainly at the expense of Samsung, still the world's largest producer. But at the same time, any loss of QCOM business to Samsung appears to be made up by increased business with Chinese OEM's.

    Seen in that light, the $975 million paid by QCOM to Chinese regulators is really nothing more than the cost of a license to continue doing more profitable business in China. And the loss of a chip in one Samsung model does not appear to have a long term adverse impact on QCOM profits.
    Apr 10, 2015. 02:29 PM | 1 Like Like |Link to Comment
  • We've Soured On Chevron's Dividend... Sorry [View article]
    The largest investment CVX is making currently is in the LNG facility off the coast of Australia. Why is LNG promising? Because as an energy source it is less polluting than coal or oil, less dangerous than nuclear, and less costly than oil, even during this period when oil prices are at about six year lows.

    The CVX investment of some $50 billion should be compared with the recent decision of Shell Oil to buy BG, a spinoff of the old British Gas, for about $46 billion. When you're spending that kind of money to buy gas, you must have a good reason.
    Apr 8, 2015. 01:05 PM | 1 Like Like |Link to Comment
  • Qualcomm: Still A Cash Machine, Samsung-Based Negativity Overblown [View article]
    The loss of Snapdragon 810 in the Galaxy S6 as well as the use of non–Qualcomm chips for baseband in at least some models of the S6 is more than compensated by QCOM chips going into smartphones made by Xiaomi, Huawei, Lenovo, ZTE, and other Chinese manufacturers. The Chinese firms are, in fact, what have dealt the biggest blow to Samsung in China and elsewhere (a bigger blow even than Apple).

    Excess chip capacity appears to be the main reason Samsung is trying to use more of its own chips in its smartphones. If these chips began to appear in competing phones, then I'd want to reevaluate QCOM future prospects. But that doesn't appear to be the case at all. Qualcomm remains the technology leader, especially in baseband chips, but also in chips that consume less power for a give level of performance.

    There are just too many positive variables to justify the current price near $67. Not only is it low in terms of forward looking price-earnings (with conservative assumptions) but it does not reflect rapidly rising sales of QCOM chips to Chinese firms, and the royalties that eventually accrue. In that regard, it appears that Qualcomm is now able to collect royalties from Chinese companies that previously had been avoiding royalty payments, especially on domestic sales.

    The pessimism expressed by many analysts has created a buying opportunity. And the optimism of other analysts often ignores some of the really positive factors.
    Apr 7, 2015. 03:57 PM | 5 Likes Like |Link to Comment
  • Sell Qualcomm After Being Dropped From The Galaxy S6 [View article]
    The loss of QCOM chip revenues from the Galaxy S6 is more than compensated by the gain from Xiaomi, Lenovo, Huawei, and other Chinese firms that are not only increasing sales in China but in many other developing nations. Royalties to QCOM may decline on a unit basis, owing to the fact that the Chinese phone makers are selling their devices at a big discount to those from Samsung, though the performance of many models is similar.

    Although there is growing competition in baseband processors and related chips, none so far have the overall performance and compatibility of QCOM chips, which benefit from years more research and a much greater research budget than that of competitors. Additionally, almost all non–QCOM baseband and related chips, no matter who makes them, generate royalties for QCOM.

    It is too early to assume that the loss of sales to the S6 is reason enough to sell QCOM shares. There are just too many other positive variables.
    Apr 7, 2015. 03:39 PM | 18 Likes Like |Link to Comment
  • We've Soured On Chevron's Dividend... Sorry [View article]
    Too many assumptions can lead to questionable data and even more questionable conclusions. Are you assuming as well that new technologies to reduce drilling or processing costs are likely to have no impact on the bottom line? Or are you assuming that Chevron is too tradition bound to adopt new technologies? Or are you assuming that your analysis of questionable data "proves" that there will be little or no dividend increase for awhile? What is the "value" of your analysis?
    Apr 6, 2015. 11:00 AM | 1 Like Like |Link to Comment