Thursday, November 15, 2007
For the last couple of weeks, the Qualcomm share price has been quite volatile. It did not get reprieve from the market going down also. So what happened?
- A quarter conference call in which the company, despite posting a stellar quarter announced a below-par expectation for the next quarter. This expected earning excludes the money it will be getting from Nokia accounting for a drop of about $0.25 in EPS. This sent the share prices tumbling to $36.60, almost a three-year low.
- The share has since steadily climbed back to around $41 helped by an optimistic analyst conference and the news that a Nokia case was overthrown in Dutch courts.
- There were other events that bolstered the share price back. The off-beat acquisition of Firethorn and the Android partnership with Google.
The share has thus been fairly volatile and will probably be this way until the legal battles are over. I did have a couple of comments though -
- It is OK that the shares tumbled to $36.60. But here is the deal. At that rate, the company has pretty much absorbed all legal risks. This is precisely the point I was making in my Qualcomm series on Sramana Mitra's site. Other analyst opinions following the Analyst day yesterday reflect my opinions loud and clear. My point is that Qualcomm is infact doing a smart thing by not taking into account any money it has to receive fro Nokia. Contrast this against a situation when it assumes a 5% royalty while it has to settle for 2%, say. In essence, the company is converting this legal risk into a positive. Now, any money that comes from Nokia royalty, 2% or 5%, it does not matter, will only be an upside, right? Besides, I have pointed out in my analysis, Gobi itself is enough to push the share valuation back to $41 or so.
- With the optimism surrounding Firethorn and Android, the shares can only go up. Of course, to me, both these ventures are still unclear in terms of monetization for Qualcomm. So, I will reserve my comments on these for later.
The only thing I did not comprehend was the rather reserved tone that the Qualcomm executives took this time around during the conference call.