Gobi - QCOM valuation guesstimate

Wednesday, October 24, 2007

OK, maybe I am jumping the gun, but I wanted to have a quick feel for what Gobi and a future-line of products in this direction meant for QCOM and the numbers have left me a little more comfortable with its share value than I have been in the past few days.

Before I go into the findings, here are a few assumptions I have made. Feel free to correct me and we can get a more accurate valuation together.
  • Around 120 million laptops are expected to ship in 2008. I have assumed a CAGR of around 14% to project until 2012
  • Start with a high 10% market penetration for Gobi in 2008 adding 5% every year hence
  • Chipset cost starting $50 for 2008 and reducing to around $40 in 2012
  • Royalty at 5% of chipset price
  • Operating margins of 25% for chipsets and 90% for licensing fees
What I am finding based on this (guesstimate) is that the potential revenue from this venture is about $7 billion in the next five years. The point to note that most of this comes from chipset sales. The licensing revenues will be a percentage of the module and not on the laptop price or at the cap. So, this revenue will be more fool-proof if one can say that. Another news is that my valuation for the company share has gone up by about $10. It is definitely a good sign. I was earlier getting numbers between $40 and $45 with QCOM's current market position. This was assuming all lawsuits went in favor of QCOM. So, I had the feeling that the market really has not observed the legal risks involved at that point and was just going with historical growth data.

With a couple of lawsuits going against it, or if the Nokia negotiations yield slightly unfavorable percentages, the share value can still potentially slide below its current market value. Nonetheless, I think this is a good sign of things to come. As an engineer, this technology leadership excites me while my analyst side is curious to see beyond the veiled curtain:)

Posted by Vijay Nagarajan at 7:21 PM  

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