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  • Qualcomm's Real Problem Is Its Capital Structure And Troubled QCT Business [View article]
    I get that people are scared by the current selloff of the stock. The SK news certainly wasn't good but neither was it unexpected.

    I think the notion that QTL and QCT are so different that they should be split up is incorrect. Qualcomm, right now, sells BOTH actual chips AND licenses to OEMs. This arrangement lets their sales team sell a more complete package to an OEM. The fact that so many mobile devices use Qualcomm chips gives them additional leverage in any negotiation.

    Talk of splitting up QCOM is very unlikely to gain any traction. The activities of QTL and QCT are intimately tied to the mobile industry. It's not like we're talking about a conglomerate where one part makes phones and the other part makes washing machines. Now, if QCOM also, for some reason, had a division making TV screens I could see selling that off. But having one business do chips and licensing in the mobile space is a really good fit.

    QCOM ain't broke and doesn't need much fixing. It certainly doesn't need radical surgery. I think with just a little bit of patience people are going to remember QCOM is a major player in one of the fastest growing segments in the world. Step by step they can finish off the China licensing; restore their mojo with the 820; work out a deal with SK and finally pivot to other growing businesses like IoT.

    Break apart the company now? Foolishness. It has a very bright future.
    Nov 27, 2015. 12:35 AM | 7 Likes Like |Link to Comment
  • Oil rig count declines for 2nd week [View news story]
    Every single reason that the Saudi's would not cut 6 months ago still exist today. Nothing has changed. US shale didn't fall out of bed the way a lot of people expected, they're basically holding steady. World demand didn't spike to sop up all the supply.

    There is essentially no reason for KSA to cut now. In fact there is no reason for them to cut unless something changes OR they run out of money. They won't run out of money for at LEAST 2 years.

    No, this fight is going to drag on for quite some time.
    Nov 25, 2015. 05:52 PM | 3 Likes Like |Link to Comment
  • Crude inventories higher by 1M to 488.2M barrels [View news story]
    Still well over 9,000 though. This was the month when the shale production was supposed to start really collapsing and it still isn't happening. In fact, the current production is above the 4 week moving average.

    I haven't looked at the data in detail in a while but I think they're just moving from well to well so that the rig count isn't changing much. The wells they're opening were already drilled so it may not be counted as a "new" well. If that's what's going on they may have a huge ability to stay level for a really long time. Smart but also irritating if you're long oil. Then again, I'm benefiting in lots of ways as a consumer so in some ways I see my long oil as a hedge against higher consumer prices if oil turns.
    Nov 25, 2015. 11:48 AM | 2 Likes Like |Link to Comment
  • Making The Case Against An Apple Television Set [View article]
    I don't think an apple TV is very expensive to develop. There is, to me, no compelling reason apple should not have screens that range through the very large to the very small.

    When you consider the synergy possible across a TV, Tablet, phone and watch ecosystem the idea becomes more appealing (what I call the applefied home).

    One area I'd love to see apple more aggressive in is the IoT. I don't know how they would get into it without risking their brand but that's a large future market.
    Nov 22, 2015. 10:29 AM | 1 Like Like |Link to Comment
  • Qualcomm Annual Yield Hits 4% [View article]
    Hah, I would never guarantee a stock price recovery. But i do think QCOM is priced right now as though everything is going to go wrong. They're priced as if they'll never sign the remaining Chinese companies and they're priced as though almost all the SK profit is going to go away.

    While those outcomes are possible I think they're extremely unlikely. In fact, we're one press release away from a big pop if QCOM signs either (or both) of the two remaining Chinese holdouts. SK is going to be a longer term slog through the courts but I seriously doubt SK will be able to limit the licensing terms to JUST the chip. That would be too blatantly preferential to Samsung and I think it would bring the US Government into the situation which SK does not want (nor did China). If China could have limited the ASP just to chips don't people think they would have done it? They couldn't because that would have definitely triggered intervention from the US Government so China pushed it as much as they could and they got 65% of device ASP.

    Why would the market just assume that SK can do better than China? The market is behaving as if QCOM just fell off the turnip truck and has no idea how to handle both the economic/political/legal aspects of this. That's strange because they got, in the end, a pretty good deal in China which allows them to maintain a quite good profitability position there.

    Lastly, the "nuclear option" does exist wherein Qualcomm could say "fine, if those are the terms then you can't use our IP at all". Right at the moment that would be quite painful to almost every android based OEM (even Samsung).

    This is a negotiation and of course SK is going to start out with the most strict demands. That's how most negotiations begin. You start with your dream outcome and then go from there to meet somewhere in the middle. I think there really isn't much disagreement that QCOM's licensing model in the past had at least some monopolistic aspects to it. It's one of the ways that they accumulated 30 billion in cash. So I do anticipate some of the margin being cut out in SK but I don't see them moving to a chip based license model. QCOM will throw itself on it's sword before they let that happen. And, fortunately they have a 30 billion dollar buffer to fight tooth and nail if need be. Heck, they can even afford to fight dirty if it really comes down to it.
    Nov 21, 2015. 12:00 PM | 1 Like Like |Link to Comment
  • 25% Allocation To Apple - Too Much Risk? [View article]
    I sometimes wonder what people mean by portfolio. For me I use my net worth as my indicator of how I'm allocated. So if Apple is 5% of my net worth then I consider it to be 5% of my "portfolio". So for me that % includes my retirement account (which is all in large cap diversified mutual funds).

    However, I also have my "trading" accounts which are much smaller than my retirement account. I have a speculation account and an investment account.

    If you mean that Apple is 80% of all your financial assets I'm sorry to say it but that's extremely reckless. I don't think even the most ardent fan of concentration is going to endorse an 80% allocation to one stock. You're one major company event from losing almost everything. I know you've heard it before but please think carefully about whether you really want to take that much risk, particularly if you mean that Apple is literally 80% of all your financial assets.
    Nov 21, 2015. 11:38 AM | 5 Likes Like |Link to Comment
  • 25% Allocation To Apple - Too Much Risk? [View article]
    Avoiding company risk is important because the future is unknowable. I agree 100% that Apple looks like a great company and I'm overweight at about 5%. However I would not be able to sleep at night if it was 25%.

    A lot of things can go very wrong with one company. Forget about the iPhone. When you're so heavily in one company you need to worry about much more esoteric risks. What about possible accounting fraud? What about a global conflict that strands apples cash hoard oversees? What if Tim Cook, God forbid, dies tomorrow. Etc.

    I don't think you've reduced the number of things you need to worry about... I think you've increased them. Also, be wary of comparing to very large investors because they will often take an enormous stake in order to have influence with the board. That's a whole different ballgame from a Regular Joe building a portfolio.

    Again, I love apple as an investment and it is usually my largest holding. But nowhere near 25%. You may not realize it but you have almost taken on the risk profile of an owner with absolutely none of the control an owner would normally have.

    Your point about having a tough time finding an equally good stock resonate with me. As I look around I can find plenty of good stocks but really none check off every box like Apple. So I understand the temptation to... I guess let's call it "superweight" apple.
    Nov 21, 2015. 10:03 AM | 4 Likes Like |Link to Comment
  • U.S. oil rig count falls by 10, Baker Hughes says [View news story]
    We've learned that if the world is relatively peaceful then we can produce more oil than we need at $100 a bbl. In the past OPEC would have cut some of its production and the worst of the price decline may have been avoided. Today, OPEC can't control prices. If OPEC tries to control prices then North America can step in to fill the void (who would have expected that).

    So the strategy instead is to drive prices down and put high cost producers out of business. However, that's turning out to be a lengthy process as NA shale, in particular, has proven to be resilient. They didn't collapse like a house of cards like I thought they would.

    So what we have right now is a persistent oversupply that is keeping stockpiles at record highs despite very low prices. However, the low price has stimulated some demand increase but not much. Overall world oil consumption seems to march forward at a pretty steady pace almost irrespective of price.

    The higher cost producers wont pull oil out of the ground at a loss forever. Eventually if the price stays high long enough their money will run out and they'll stop. But this cycle is starting to look somewhat unique in the duration it may take for that to happen. We're easily looking as bad as '86 and before all is said and done we may wind up looking back on this cycle as even worse than the '86 one.

    Having said that, the world's oil needs will keep marching slowly upward and there are very few abundant cheap sources of oil left. At some point demand will once again edge ahead of production and there will be a scramble to meet it. Sadly that day may come too late for me with respect to some of my investments. I think I'll eventually take a loss on DBO because of the inherent "melt" baked into that security.

    However, I feel very good about cherry picking best of breed E&P companies here. In particular I like companies with strong balance sheets that have weathered downturns many times. SLB is at the top of my list right now. I have zero doubts about accumulating SLB on each new leg of weakness.
    Nov 20, 2015. 06:37 PM | 4 Likes Like |Link to Comment
  • Apple: iPad Pro Is A Bust [View article]
    I remain confused as to why apple isn't making a proper 2 in 1. It seems like that is where the market is heading but apple is insisting on having separate form factors.
    Nov 19, 2015. 12:57 PM | 1 Like Like |Link to Comment
  • Quarz Capital Management's Open Letter (Dated Nov. 10, 2015) To Apple Pushing For Split Of Apple's Software And Services Operating Numbers [View article]
    The last thing you want to do during a massive share buyback is drive up the price of the stock with any gimmicks.
    Nov 19, 2015. 09:24 AM | 12 Likes Like |Link to Comment
  • Qualcomm Annual Yield Hits 4% [View article]
    Eh, that was the fear with China too.

    People trade this stock as if the very worst possible outcome is going to happen. The China outcome was actually not bad but the fear was there that they were going to hit Qualcomm very hard.

    I doubt SK will be able to set precedent if China didn't. Also, it isn't like Qualcomm can't call on the US Government for help. People tend to forget that Obama commented on the negotiations with China. I think that helped to make sure China didn't try to impose the strictest possible agreement. Same will happen with SK.
    Nov 19, 2015. 02:14 AM | 7 Likes Like |Link to Comment
  • Qualcomm Annual Yield Hits 4% [View article]
    To give some idea of how much the market hates this stock...

    SK is good for about 16% of QCOM's revenue. Today, at the low, the market had removed 10.3% of the company's market cap. So, based just on this news the market had, at the low, behaved as if 64% of the SK revenue is going to completely disappear.

    Now that's some pessimism.
    Nov 18, 2015. 06:48 PM | 6 Likes Like |Link to Comment
  • Qualcomm Poorly Positioned To Compete With Apple And Samsung [View article]
    Performance on benchmarks isn't what sells consumers. Things like Sense, quickcharge, and better image processing are things that can actually be marketed.

    If I were you I'd be looking into the new features introduced in the new chip generation rather than raw performance benchmarks. Also, battery life will almost always trump raw performance as a selling point, the architecture of the chip will play a large role in how that plays out.

    I don't think your conclusion that the 820 can't possibly get a Samsung win is correct. If the 820 can bury the Exynos on features and efficiency then it will be a compelling choice for them. If they ignore it then it just opens the door for competitors to design better phones and gain market share. I don't think Samsung is so married to their own SoC that they'd risk losing share over it.

    This is all still very much up in the air at this point but if the 820 does everything QCOM says it does then it's a very appealing chip. If not? Then yeah it will be a lousy year, again. But I think it's a mistake to base the analysis on raw benchmark speed. End consumers don't care about that.
    Nov 15, 2015. 01:09 PM | 11 Likes Like |Link to Comment
  • Crude inventory builds more than expected [View news story]
    What you're missing is that there is a price war underway and no one wants to blink. In the meantime inventories are at levels never seen before.

    What's worse is that no one can afford to blink because they will immediately lose the revenue they are desperately dependent on. I'm sure Venezuela would like to announce production cuts but if they go it alone all it will really mean for them is less revenue.

    Even worse than that, even if OPEC cuts right now it will be months before inventory comes back in line with demand.

    The upside for bulls is that sustained low prices and enormous inventory builds means E&P is going to be cut to the bone by the time this cycle is over. But this process could take years, not months. The big players in production are not looking 6 months into the future, they're looking 6 years into the future.

    Whatever you invest in make sure you can hold it for a long time. Had I known how this was going to play out I would have relied much less on DBO and much more on stocks like SLB. DBO has too much "natural decline" built into it and by the time oil turns I'll be lucky to break even.
    Nov 15, 2015. 11:45 AM | Likes Like |Link to Comment
  • Apple Has Become A Trading Stock [View article]
    It's even better than that.

    Let's take the current market cap of 645B and subtract out their cash of 206B and that leaves 439B. Now, let's check out their free cash flow. It has been increasing for the last 4 years but let's go ahead and take the average, that's 52.5B.

    Some more math, how long would it take Apple to completely buy itself back if they used all their cash and their free cash flow. That would be 439B/52.5B=8.4. So it would take about 8 years for Apple to buy back every share outstanding. AND that's assuming that Apple just treads water and doesn't grow at all.

    What this means is that over a long enough timeframe Apple can, quite literally, force the price of the stock higher. In fact, the more the market beats up on the stock the easier it is for Apple to drive up the EPS and dividend yield purely through buybacks.

    I guess the market could keep hating Apple until the shares are yielding a 180% dividend but that seems unlikely. More likely the share price will rise as the shares OS continues to plummet. They've already bought back about 15% of the company in the last two years. Can it get better? Yep. They did a lot of that buyback with extremely cheap debt. In fact, Apple issued a significant portion of that debt at rates below the risk-free rate so essentially, after inflation, Apple is getting paid to issue debt (without even factoring in the favorable tax treatment of debt with respect to WACC).

    The market's hate of Apple is a gift to investors (or even speculators) who can do even some rudimentary fundamental analysis. I have a core long position and then a trading position.
    Nov 14, 2015. 11:22 AM | 1 Like Like |Link to Comment