12-7-2013
Technology
Qualcomm
Ticker: QCOM
Current Price: $73.31
Recommendation: Hold
Implied Price: $66.22
Investment Thesis
Key Statistics
52 Week Price Range
58.11- 70.37
50-Day M oving Average
68.55
Estimated Beta
0.96
Dividend Yield
1.40 (1.90%)
%
M arket Capitalization
120.96B
3-Year Revenue CAGR
31.31%

Qualcomm is the leader in the mobile communications industry. They lead
innovations in new products and intellectual property. Their dedication to
research and development gives them security in such a competitive market.

Qualcomm is an ideal position to take control of emerging markets through
the global transition from 3G to 4G networks.

The global demand for smartphones is on the rise, and Qualcomm plays a
key role in many of the popular smartphones.
Trading Statistics
Diluted Shares Outstanding
1.69B
Average Volume (3-M onth)
10,420,000
Institutional Ownership
79.60%
Insider Ownership
1.25%
EV/EBITDA (LTM )
13.85
Margins and Ratios
Gross M argin (LTM )
63.00%
EBITDA M argin (LTM )
34.41%
Net M argin (LTM )
36.95%
Debt to Enterprise Value
NA
Covering Analyst: Max Grier
Max.grier@yahoo.com
1
Montana Investment Group
Montana Investment Group
12-7-2013
Business Overview
Brief history of the company



They are located in Sand Diego, CA.
Qualcomm was founded in 1985 by MIT alumnus and UC San Diego
professor Irwin M. Jacobs, USC and MIT alumnus Andrew Viterbi.
In 1989 they publically introduced the CDMA communication
technique. In 1999 Qualcomm sold its base station business to
Ericsson, and later, sold its cell phone manufacturing business to
Kyocera. In 2011 they announced Steve Mollenkopf as president and
COO of the company.
How the company makes money
Revenues

Their revenues come from selling products and services, which include:
integrated, Radio Frequency (RF), and Power Management (PM) chips
and system software used in mobile devices and in wireless networks.
They also generate revenue through software products and services for
content enablement across a wide variety of devices for the wireless
industry, mobile commerce service, and hardware development service.
They also license portions of their intellectual property portfolio, which
include patent rights essential for the manufacture and sale of wireless
products.
i.
Segmentation Information
Qualcomm CDMA Technologies (QCT):
ii.
Qualcomm Technology Licensing (QTL):
iii.
iv.
Develops and supplies integrated circuits and system software based
on CDMA, OFDMA, and other technologies for use in voice and data
communications, networking, application processing, multimedia, and
GPS products.
Grants licenses or provides rights to use portions of Qualcomm’s
intellectual property, which includes certain rights essential for
manufacture and sale of certain wireless products. Some of these
products include products implementing: CDMA200, WCDMA,
CDMA TDD, GSM/GPRS/EDGE/ and/or OFDMA. QTL also collects
license fees as well as royalties based on sales incorporating
intellectual property.
Qualcomm Wireless & Internet (QWI):
This segment consists of four subdivisions: QES, QIS, QGOV, and
Firethorn.
 QES provides fleet management, satellite and terrestrial-based
two-way wireless information and position mainly used for
transportation and logistics companies.
 QIS provides content enablement services for the wireless
industry and push-to-talk.
 QGOV works primarily with government agencies and their
contracts to provide development and other services related to
wireless communications technologies.
 Firethorn builds and manages software applications that enable
certain mobile commerce services.
Qualcomm Strategic Initiatives (QSI):
Is the segment pertaining to Qualcomm’s Ventures, Structures
Finance & Strategic Investments, and FLO TV. This segment mainly
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12-7-2013
supports investments in early-stage companies, new capabilities, and
new technologies.
Revenues by Segment
The revenues for each segment will be given for each segment as a percentage
of total revenue for 2009, 2010, 2011, and 2012 respectively.




QCT: 59%, 61%, 59%, and 68%. Net growth from 2009-2012 is
97.83%.
QTL: 35%, 33%, 36%, and 33%. Net growth from 2009-2012 is
75.51%
QWI: 6%, 6%, 4%, and 3%. Net growth from 2009-2012 is 1.25%
QSI: Revenues for QSI were either insignificant or non-existent,
because they are not reported in the 10-k.
Strategic Positioning
Qualcomm’s general business functions consist of Research and Development,
Sales and Marketing, Competition, Patents, Trademarks, and Trade Secrets.
What Qualcomm does in each of these areas.
1) Research and Development:
The communications industry is rapidly changing and continuously
enhancing products and technologies. Qualcomm is a leader in the
industry and to keep their competitive advantage they must invest
heavily in R&D. R&D expenditures are primarily related to
development of integrated circuit products and continuing advancement
in CDMA and OFDMA technologies. The goal is to accelerate
advanced wireless products with lower cost devices, integration with
consumer electronics, convergence of multiband, multimode, multinetwork products and technologies, and third-party operating systems.
This strategy will keep Qualcomm’s first-mover advantage in the
industry and preventing companies from catching up with technologies
in production or products being researched.
2) Sales and Marketing:
Qualcomm’s marketing activities include public relations, advertising,
web marketing, participation in technical conferences and trade shows,
competitive analyses, industry intelligence, and other marketing
programs to further develop customer relations. Strategic positioning in
the market keeps Qualcomm advantageous in comparison to
competitors. Gaining an understanding of customer needs gives crucial
information on product pricing and timing of products to market.
3) Competition:
The communications industry will continuously experience fierce
competition as consumers, businesses, and governments realize the
potential benefits of wireless communications products and services.
They are vulnerable to competitors which may have an advantage with
manufacturing companies in emerging regions (i.e. China). These
relationships may affect customers’ decisions to purchase products or
license technology from us. Although this is a threat the next segment
helps combat these factors.
4) Patents, Trademarks, and Trade Secrets:
Their competitive position can be maintained or enhanced through the
combination of patents, copyrights, trade secrets, trademarks, and
proprietary information. A substantial portion of these patents are
essential for implementation of CDMA2000, WCDMA (UMTS), TD-
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12-7-2013
SCDMA, TD-CDMA, and OFDMA products. These patents have
coverage in many countries around the world and Qualcomm
continues to pursue patent applications around the world. Important
patents are essential for all 3G standards based on CDMA and patents
that might be essential for certain standards based on OFDMA
technology. Extensive R&D efforts result in a leading intellectual
property portfolio and continuation of increases in important patents,
which will be essential for implementation of new technologies.
Industry
Overview
The wireless communications industry is extremely competitive. The industry
has seen dramatic increase over the past decade due to an increased demand for
mobile communication devices. The number of worldwide mobile connections
is expected to increase over the next years to drive the need for voice calls in the
mobile environment. More recent demands are associated with the desire to
access high-speed data services. With increased demand for wireless
communications comes increased competitors in the industry putting pressure on
companies to stay innovative. The largest development in the industry is within
China and emerging markets.
Qualcomm is staying the leader in the industry through their QCT and QTL
segments. They also focus a large percent of revenues to research and
development to accomplish their competitive advantage. QCT faces industry
challenges through customers demand for increasing performance in modern
smartphones. Along with innovating products Qualcomm’s QTL segment is
dedicated to developing innovative patents and intellectual property. This is
essential to stay the leader in the industry by having the most innovative and
efficient patents essential to 3G/4G smartphones.
Why does their line of business exist?
Macro factors
The United States has the most developed and advanced mobile communications
industry in the world. This is due to the enormous growth in demand for
smartphones over the past five years. The majority of cell phone owners now
own smartphones. American consumers have helped drive the growth of the
industry within the United States, but more recent developments show rapid
growth in China and emerging markets. Qualcomm’s revenues are relatively
small compared to foreign customers. They are continuing to focus their energy
on expanding products in China, South Korea, Taiwan, and other foreign
countries. The growth in demand for 3G in China has sky-rocketed in the recent
years and is expected to increase further in the future. Foreign countries will
convert from 3G to 4G, creating an even larger demand for Qualcomm products.
Along with increasing focus in emerging markets, Qualcomm faces a huge risk
if foreign currencies were to decrease in value. The Chinese currency (Yuan)
has been steadily increasing in value compared to the USD, benefiting revenue
from China. The Yuan is currently very undervalued which may be good news
in future years if the value continues to increase. Qualcomm with also see a
detrimental effect on their revenues if foreign currencies decrease in value
compared to the USD.
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12-7-2013
Competition
The wireless communication industry has intense competition to stay on the
forefront of advanced technology. The semiconductor business forces
companies to shovel money into research and development to stay innovative.
Qualcomm’s main competitors are: Broadcom, Texas Instruments, Analog
Devices, Ericsson, and Fujistu. All of these companies have less income and
much smaller margins than Qualcomm. Qualcomm’s margins are much more
impressive than any of these companies and manages to dedicate a smaller
percentage of gross revenue to research and development, while managing to
stay the leader in the industry. While Qualcomm has a large market share in the
telecommunications industry, much of this market share is in the higher tier
markets. It’s competitors in America and abroad appears to be focusing on lower
tier markets to gain market share. In the short term these competitors may not
affect Qualcomm’s earnings, but as competition drives average device price
lower margins may take a hit. Although these companies could take market
share in low price tiers, I feel the industry is rapidly progressing and
Qualcomm’s price skimming will be the most efficient pricing model. In short
these companies will not be able to match Qualcomm’s performance regardless
of price tier.
Management and Employee Relations
Paul E. Jacobs
-
CEO and Chairman
Dr. Paul E. Jacobs, Ph.D., has served as Chairman of Qualcomm, since
March 2009, as a Director since June 2005, and as Chief Executive Officer
since July 2005. He served as Group President of the Qualcomm Wireless
& Internet Group from July 2001 to June 2005. Jacobs holds a B.S. degree
in Electrical Engineering and Computer Science, a M.S. degree in
Electrical Engineering and a Ph.D. degree in Electrical Engineering and
Computer Science from the University of California, Berkeley. Paul
Jacobs is the son of Dr. Irwin Mark Jacobs, former Chairman of
Qualcomm.
Steven Altman
- Vice-Chairman
- Steven "Steve" R. Altman, has been the Vice Chairman of Qualcomm Inc.
since October 3, 2011. Mr. Altman earned a B.S. degree in Political Science and
Administration from Northern Arizona University in 1983, and a J.D. from the
University Of San Diego School Of Law in 1986. Mr. Altman served as
President of Qualcomm Inc., from July 2005 to 2011. He served as Qualcomm's
Executive Vice President from November 1997 to June 2005, and as President
of Qualcomm Technology Licensing Division from September 1995 to April
2005. He became Vice President and General Counsel of Qualcomm in 1992.
He joined Qualcomm in 1989 as Corporate Counsel and was the chief architect
of Qualcomm's strategy for licensing its broad intellectual property portfolio for
wireless communications, which has accelerated the growth of CDMA
technology.
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Steven Mollenkopf
- President and COO
- Mr. Mollenkopf joined Qualcomm in 1994 as an Engineer and throughout his
tenure at Qualcomm held several other technical and leadership roles. Mr.
Mollenkopf was elected to the Qualcomm Atheros, Inc.'s Board of Directors in
May of 2011. Mr. Mollenkopf holds a B.S. degree in Electrical Engineering
from Virginia Tech and an M.S. degree in Electrical Engineering from the
University of Michigan. Mr. Mollenkopf will oversee Qualcomm’s divisions,
business operations and market expansion and development areas. He will also
continue in his role as President of Qualcomm CDMA Technologies (QCT).
Derek Aberle
-Executive Vice President and Division Officer
- In 2000, Mr. Aberle joined Qualcomm after representing the company as
outside counsel for several years at the law firms of Pillsbury Madison and Sutro
and Heller Ehrman. Mr. Aberle holds a B.A. degree in Business Economics
from the University of California, Santa Barbara and a J.D. from the University
of San Diego. Derek K. Aberle, has served as an Executive Vice President of
Qualcomm Inc., and as President of Qualcomm Technology Licensing (QTL)
since September 2008.
George Davis
-Executive Vice President and CFO
- George S. Davis, was appointed Qualcomm, Inc.'s Executive Vice President
and Chief Financial Officer commencing March 11, 2013. Previously he was an
officer of Applied Materials, Inc. until March 8, 2013. He was promoted to
Applied Materials, Inc.'s Executive Vice President, Chief Financial Officer in
December 2009, after serving as Senior Vice President, Chief Financial Officer,
since December 2006. . Mr. Davis received his Undergraduate degree in
Economics and Political Science from Claremont McKenna College and his
Master's in Business Administration from the University of California, Los
Angeles.
Recent News
Qualcomm Technologies Announces Fourth-Generation 3G/LTE
Multimode Modem and RF Transceiver Chip
Qualcomm is now introducing their newest modem chipset, the Qualcomm
Gobi9x35, and RF transceiver chip, the Qualcomm WTR3925, designed for the
4G LTE Advanced mobile broadband connectivity. The Gobi 9x35 is the first
cellular modem based on the 20 nm technology node, a large improvement from
their 26nm node. This is an exciting development for Qualcomm and stands to
show their technological advancement and there is no idle time in their R&D.
Qualcomm Snapdragon Processors Continue to Drive the
Smartphone Space with Nexus Devices from Google
Google’s newest android smartphone, the Nexus 5, will be powered by
Qualcomm’s Snapdragon 800 processor. The Nexus 5 is the first smartphone to
be released with global LTE support. Google’s newest phone also utilizes the
Qualcomm QFE1100 feature, which reduces heat up by up to 30% and power
consumption by up to 20%, enabling thinner form factors and longer battery life.
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12-7-2013
Catalysts
Upside




Continued growth in China and emerging markets.
Global adoption of 3G and soon global bridge from 3G to 4g
technologies.
Qualcomm provides wireless companies with the R&D to bring their
innovations to market.
Positive results from partnership with Google’s line of smartphones.
Downside



New competitors in emerging markets may drive average unit selling
price down.
Integrating new employees and retaining key employees.
A decline in global economic conditions in geographic regions with
high concentrations of wireless voice and data users.
Comparable Analysis
Texas Instruments-40%
“Texas Instruments designs and makes semiconductors that it sells to electronics
designers and manufacturers all over the world. As of Dec 31 2012, Co. had
three reportable segments: Analog, consisting of the following major product
lines - High Volume Analog & Logic, Power Management, High Performance
Analog and Silicon Valley Analog; Embedded Processing, consisting of digital
signal processors and microcontrollers used in catalog, communications
infrastructure and automotive applications; and Wireless, consisting of OMAP™
applications processors, connectivity products and baseband products.” –
Mergent Online.
Texas Instruments was chosen as a comparable because of its participation in the
semiconductor industry and its global exposure. They participate in the licensing
of its products, which is similar to Qualcomm’s QTL division. They haven’t
seen the same growth or size as Qualcomm, but their margins are close to
Qualcomm’s.
Analog Devices- 30%
“Analog Devices designs, manufactures, and markets a range of integrated
circuits (ICs) that incorporate analog, mixed-signal and digital signal processing
technologies. Co.'s ICs are for a range of signal processing applications. Co.'s
principal products include analog products which consist of converters,
amplifiers/radio frequency, other analog, and power management and reference
products; and digital signal processing products. Co.'s products are embedded
inside electronic equipment including: industrial process control systems;
factory automation systems; energy management systems; automobiles; digital
televisions; medical imaging equipment; and optical systems, among others.” –
Mergent Online.
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Montana Investment Group
12-7-2013
Analog Devices was chosen as a comparable due to their growth rate and
product line. Their wireless segment resembles Qualcomm’s and they both face
similar competitive pressures in the industry.
Broadcom- 25%
“Broadcom is a provider in semiconductor applications for wired and wireless
communications. Co.'s products deliver voice, video, data and multimedia
connectivity in the home, office and mobile environments. Co. provides a range
of system-on-a-chip and embedded software applications. Co.'s product portfolio
includes: Broadband Communications, which provides application for cable,
xDSL, fiber, satellite and IP broadband networks; Mobile and Wireless, which
provides integrated applications for the mobile and wireless ecosystem; and
Infrastructure and Networking, which provides integrated applications for
carriers, service providers, enterprises, small-to-medium businesses and data
centers.” – Mergent Online
Broadcom was a good comparable due to their similar revenue, growth rates,
and global exposure. Although Broadcom is smaller than Qualcomm they
supply similar products and compete for the same customers.
Ericsson- 5%
“LM Ericsson Telephone Co. provides communications infrastructure, services
and multimedia solutions. Co. develops and delivers mobile and fixed
infrastructure equipment and related software. Co. is also engaged in managed
services, consulting, systems integration, customer support and network rollout.
In addition, Co. offers mobile phones, accessories, content and applications.
Finally, Co. offers wireless platforms and semiconductors for handset
manufacturers. Co. divides its operations into four business segments: Networks,
Global Services, Support Solutions and ST-Ericcson.” – Mergent Online
Ericsson was chosen as a comparable due to their similar products and services.
They also have similar revenues compared to Qualcomm. Although Ericsson is
based in Sweden and doesn’t compete as strongly in the regions Qualcomm
does. Qualcomm also sold their base station business to Ericsson in 1999.
Fujitsu- 0%
“Fujitsu is a provider of information technology ("IT")-based business solutions.
Co.'s operations are divided into three divisions: technology solutions,
ubiquitous solutions and device solutions. Technology Solutions division
provides system platforms products including servers, storage systems, software
as well as system integration, network construction and system installation
services. Ubiquitous Solutions division offers personal computers ("PCs"),
mobile phones, hard disk drives and optical transceiver modules. Device
Solutions division provides large-scale integration ("LSI") devices, electronic
components and batteries.” – Mergent Online
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12-7-2013
Fujitsu was used as a competitor based on their involvement in the mobile phone
industry. They were not weighted in the model due to strong differences in their
revenues and margins compared to Qualcomm. They were also not weighted
since most of their products are substantially different than that of Qualcomm’s.
Discounted Cash Flow Analysis
Revenue Model
The revenue model was broken down into the main revenue driving segments of
the company and the elements they consist of. Revenue is projected to grow
over the next five years at an average rate of 21.38%.
QCT revenues are projected to grow at an average rate of 23.80% over the next
five years. The QCT segment is mainly comprised of MSM device sales, which
are expected to increase globally. Qualcomm has been increasing the efficiency
of their multimode chips along with increasing their capabilities, which will
increase cell phone service provider demand for these chips. This is the largest
revenue driver for Qualcomm, accounting for 67.22% of total revenue in fiscal
2013.
QTL revenue is the second largest revenue driver for Qualcomm accounting for
30.38% of total revenue in 2013. This segment gains revenue through licenses
fees royalties. In 2013, 90 companies currently possess licenses or intellectual
property of Qualcomm. With increased research and development the potential
for increased patents, intellectual property, and companies desiring Qualcomm’s
proprietary information are expected to increase.
QWI revenue makes up a very small portion of total revenue. This segment
consists of four sub segments, with little guidance in the 10-K about future
growth; the revenue growth in this segment is projected to stay close to 2% year
over year.
QSI revenue is negligible for the foreseeable future. Revenue in this segment
wasn’t even reported in the 2013 10-K, to avoid poor estimates, this segment
wasn’t projected in the revenue model.
Regression
1 year daily
2 year daily
3 year daily
4 year daily
5 year daily
Qualcomm Beta
Beta
Weighting
0.8240
1.0388
1.0193
0.9533
0.9684
0.9607
Beta
20%
20% Multiple beta regression were performed to asses Qualcomm’s volatility. I ran
20% five regressions and weighed them evenly to get a better understanding of
20% Qualcomm’s volatility over a five-year period.
20%
Cost of Revenue
Cost of revenue is comprised of cost of equipment and services. Qualcomm has
minimal control over input costs with both turnkey and integrated fables
production. Manufacturers are responsible for procurement of raw materials and
assembly, which will directly impact Qualcomm’s cost of equipment.
MSIG 9
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12-7-2013
Research & Development
This is arguably the most important expense to a company in the Technology
industry. Qualcomm’s devotion to research and development has been a success
driver for the company. R&D is projected to increase over the next couple years
then level off since it is expected competition will be more fierce in the coming
years. There will always be the need for innovation and new technology to stay
at the top of the industry.
Selling, General, and Administrative Expense
This expense is mainly comprised of legal fees and employee-related expenses.
SG&A is projected to increase with the expectation more employees will be
needed to maintain increased growth of Qualcomm.
Depreciation and Amortization
Assets are depreciated using straight-line depreciation. Current assets are going
to continue depreciation, although with increased purchase of assets in the
future, depreciation is projected to stay at relatively the same percentage of total
revenue.
Acquisitions
Qualcomm’s amount of acquisitions per year fluctuates erratically making this
expense hard to project. I don’t expect Qualcomm to make any significant
acquisitions in the near future since they have leading technology so projections
were expected to stay relatively constant.
Capital Expenditures
Capital expenditures are projected to decline slightly over the next five years.
This is because I expect Qualcomm to spend to enhance underdeveloped
segments in the company. Qualcomm will then allocate their resource efficiently
and reduce spending on segments that aren’t worth developing.
Tax Rate
Qualcomm’s tax rate has historically been around 20% and is projected to stay
there in the future. Qualcomm is very adamant about keeping their tax rate low,
as a strategy to due so they will move headquarters to different countries to
receive tax breaks.
Cash and Marketable Securities
Qualcomm typically holds a large portion of total revenue as cash. In 2013 they
had $29.4 billion in cash, cash equivalents, and marketable securities only $8.1
billion was in US subsidiaries and $21.3 billion was held in foreign subsidiaries.
Of this $21.2 billion of this cash has been reinvested indefinitely. Cash is also
used for continuing operations, reducing their need for current liabilities.
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Qualcomm has also paid off all of their loans leaving no need to allocate cash to
loans payable.
Recommendation
I recommend a hold for the Montana Investment Group. Qualcomm is on the
leading edge of an industry with huge growth potential. Their products have
continued to outperform its competitor’s. Qualcomm’s innovative research
and development ensures they will continue to lead the wireless
communication industry. Qualcomm has been able to capture emerging
markets with 2G and 3G technology; they will increase sales during the 3G to
4G-network conversion. My relative valuation returned an overvaluation of
6.38% and a price target of $67.06. My DCF returned an overvaluation of
10.74% with a price target of $65.55. Overall my valuation of Qualcomm is
an overvaluation of 9.83% with a price target of $66.22.
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Appendix 1 – Comparables Analysis
The Montana Investment Group
25.00%
($ in thousands except per share data)
Stock Characteristics
Current Price
50 Day Moving Avg.
150 Day Moving Avg.
200 Day Moving Avg.
Beta
Size
ST Debt (MRQ)
LT Debt (MRQ)
Cash and Cash Equiv. (MRQ)
Minority Interest
Market Value Preferred Stock
Diluted Share Count
Market Cap
Enterprise Value
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Interest Expense (MRQ)
Debt/Equity (MRQ)
Debt/EBITDA (LTM)
EBITDA/Interest Expense (LTM)
Operating Results
Revenue (LTM)
Gross Profit (LTM)
EBITDA (LTM)
Free Cash Flow (LTM)
Valuation
EV/Revenue
EV/Gross Profit
EV/EBITDA
EV/Free Cash Flow
Qualcomm
$
$
BRCM
71.00
59.02
$
$
65.27
$
$
$
$
Min
64.45%
31.10%
35.16%
36.95%
$
305,000 $
83.24%
224.18%
122571.43%
$ 56,690,000
$ 15,050,000
$ 8,580,000
$ 5,680,000
6.09 x
9.28 x
22.72 x
37.27 x
Avg.
27.47%
-0.97%
3.43%
-1.66%
3,800,000
21,000
$ 2,650,000
$ 1,740,000
$
893,190
$ (1,049,060)
0.13 x
0.60 x
2.02 x
-7.01 x
$
$
$
$
$
$
$
0.00%
FJTSY
$
$
12.30
12.84
$
$
30.16 $
0.74
296
1,394
1,530,000
$
568,000
$ 15,360,000
$ 14,399,690
$
$
$
$
40.00%
TXN
21.63
20.13
$
$
20.10
$
38.51 $
1.2
$
$
$
1,000
4,161
1,435
12.32 $
1.46
30.00%
ADI
42.55
40.93
$
$
-
-
733
3,674
6,836,346
244,800
$
$
2,894,680
1,295,961
$ 3,230,000
$ 39,710,000
$ 36,352,861
$
$
8,950,000
7,351,281
49.85
47.76
-
$ 46,570,000
$ 46,573,726
$
$
-
47.11
1.18
872,104
528,833
$
310,690
$ 15,490,000
$ 16,143,961
Median
48.11%
14.73%
20.72%
14.18%
4,000 $
18.78%
97.64%
524.61%
27.23
26.65
-
$
1,680,000
$ 115,440,000
$ 113,341,000
Max
5.00%
ERIC
51.04%
8.44%
23.37%
8.98%
63.00%
29.72%
34.41%
36.95%
66,134 $
7,000 $
37.85%
21.40%
137.76%
129.01%
50050.51%
16014.29%
23,204,365
8,420,207
3,302,377
1,765,847
2.91 x
5.27 x
13.43 x
16.38 x
Metric
EV/Revenue
EV/Gross Profit
EV/EBITDA
EV/Free Cash Flow
Price Target
Current Price
Under (Over) Valued
$ 18,515,000
$ 8,699,120
$ 2,620,037
$ 1,167,650
$
$
$
$
2.81 x
5.47 x
13.03 x
18.09 x
7,000
49.70%
8.44%
14.00%
8.98%
$
122571%
24,870,000
15,050,000
8,580,000
5,680,000
$
$
$
$
4.56 x
7.53 x
13.21 x
19.95 x
$
$
$
$
7,000 $
21%
129%
16014%
8,006,000
3,979,000
1,121,000
1,360,000
1.80 x
3.62 x
12.85 x
10.59 x
Implied Price
59.41
62.97
76.05
61.00
31.64%
5.34%
4.59%
2.54%
27.47%
-0.97%
3.43%
-1.66%
305,000
19%
108%
525%
$ 34,850,187
$ 11,028,240
$ 1,600,074
$
975,300
224%
$ 56,690,000
$ 12,354,000
$ 3,640,000
$ (1,049,060)
1.04 x
3.30 x
22.72 x
37.27 x
67.06
73.44
(6.38)
MSIG 12
0.13 x
0.60 x
2.02 x
-7.01 x
64.45%
31.10%
35.16%
24.11%
32.73%
$
83%
Weight
10.00%
10.00%
40.00%
40.00%
$
$
$
52.38%
4,000 $
47%
130%
99500%
$ 12,160,000
$ 6,370,000
$ 3,980,000
$ 2,869,000
3.83 x
7.31 x
11.70 x
16.23 x
$
$
$
$
7,672
19%
98%
11642%
2,650,000
1,740,000
893,190
759,840
6.09 x
9.28 x
18.07 x
21.25 x
Weighted Avg.
3.86 x
6.78 x
14.45 x
17.38 x
Montana Investment Group
12-7-2013
Appendix 2 – Discounted Cash Flows Analysis
MSIG 13
Montana Investment Group
12-7-2013
Appendix 3 – Revenue Model
MSIG 14
Montana Investment Group
12-7-2013
Appendix 4 – Working Capital Model
MSIG 15
Montana Investment Group
12-7-2013
Appendix 5 – Discounted Cash Flows Analysis Assumptions
Assumptions for Discounted Free Cash Flows Model
Tax Rate
20% Terminal Growth Rate
Risk-Free Rate
2.74% Terminal Value
Beta
0.96 PV of Terminal Value
Market Risk Premium
5.80% Sum of PV Free Cash Flows
% Equity
100% Firm Value
% Debt
0.00% LT Debt
Cost of Debt
0.00% Cash
CAPM
8.31% Equity Value
WACC
Diluted Share Count
Implied Price
Current Price
Under (Over) Valued
Appendix 6 –Sensitivity Analysis
MSIG 16
3%
175,338
117,622
19,211
136,833
0
0
136,833
1,680
81.45
73.44
10.90%
Montana Investment Group
12-7-2013
Appendix 8 – Sources
SEC Filings
Qualcomm Investor Relations
Qualcomm Annual Report
Qualcomm Conference Calls
IBIS World
S&P Net Advantage
Mergent Online
Yahoo! Finance
MSIG 17