I have so far presented my projections of QualComm’s revenues for the next few years. In this part, I will perform an event-analysis based valuation of the wireless leader. I have only considered potential pitfalls in this analysis. In the sequel, I will look at what I consider are positive possibilities and signs (including the recent Gobi announcement).
The key events and scenarios are –
The figure below illustrates the revenue projections in each of these scenarios.
We observe that
A look into the valuation will give us a better sense of where QCOM’s future in the mobile space is headed. Before we proceed, I should mention that in each case, I have assumed that the company will be able to sustain the growth percentages obtained in my revenue analysis. This largely depends on how QCOM will perform in 4G which will start ramping up after 2012. For the first few years after 2012, with the 3G royalties still flowing in, QCOM may be able to sustain the growth. However, with a flatter patent-play in OFDMA, the game will move primarily to lower-margin chipset sales.
My valuation of the QCOM stock, based on my analysis thus far, is about $47.2 per share if the current situation prevails and QCOM gets its way in the royalty game. This is primarily due to overall increased operating margins in this case. I would drop it to $40.6 if a Nokia deal (that reduces its royalty percentage) is worked out. In a plausible domino effect situation where QCOM has to cede to other company demands, I would value the stock in the whereabouts of $36. In the hostile case situation, I see the stock price lowering to around $28.
Just to re-iterate, this is only one side of things. While I am very optimistic about the company’s Gobi move, I am still cautious about its OFDMA game-plan. QCOM can deliver in that space as well, but my fear comes from being able to retain those margins and sustain growth.
This segment is a part in the series : QualComm