Breakthrough Ideas (3-13-03 edition CONCLUDED)
Stepping-Stones That Mark Qualcomm's Future Dynamic Path
Investing decisions should be and ultimately are a function of individual investors' philosophies, theories, financial circumstances, and risk-tolerance. My primary purpose in writing this was to educate. I hoped to demonstrate the process by which breakthrough ideas can be transformed by a company like Qualcomm into strategic architectural control of a promising market with a high economic potential. In the process I found myself moving from that concept of architectural control toward a nascent theory of dynamic paths that traces the stepping-stones to strategic success. I found this interesting and rewarding.
One advantage of this partially developed theory is that it focuses on dynamic and unfolding events that mark or illuminate milestones in achieving significant competitive advantage. If I have faithfully translated Qualcomm's competitive potential into the network of concepts that comprise the theory of dynamic paths, this process suggests at least two alternative scenarios that portray favorable or unfavorable sets of future events, which are possible and variously probable. A complex sequence of Qualcomm's actions and competitors' counteractions, further complicated by unexpected macroeconomic and political events, determine what turns out be the actual future.
Moreover, probabilities diminish and become boundlessly uncertain whenever you try to look years ahead. Furthermore, history itself is open to continual interpretation and reinterpretation in light of events still further in the future that give the perspective necessary to see the present as the historical past.
Just as strategies help management reduce risk and shape the future, a theory of investing can help an investor reduce residual uncertainties to a level of risk that appears to be rewarding. Time always diminishes uncertainties about the probability of events.
A well-established principle of investment teaches that calculated risk and reward are inversely related, but also that the markets ruthlessly punish blind risk. Yet, our individual appraisals are invariably biased, either incorrect or incomplete, as mine undoubtedly is. My margin of safety from early investment in Qualcomm has kept the stock in the green for me even after the bubble burst.
Nonetheless, the occurrence of the set of favorable events that are posited will, I assume, further shift the risk/reward ratio in favor of Qualcomm as it also display a reciprocal pattern of increasing or decreasing returns in the 3G standards war. Such wars can be won by inches, but we look for more decisive battles.
Let me end by listing 20 somewhat probable events for 2003 or 2004 that represent significant evidence that Qualcomm possesses a favorable ratio of fitness:
1. China Unicom adopts multimode GSM1X (MSM6300) for its GSM networks to transform them into CDMA networks.
2. An Asian carrier adopts QCOM's multimode GMS/UMTS (MSM6200) solution.
3. A European carrier adopts QCOM's multimode GMS/UMTS (MSM6200).
4. Consolidating telecomm companies reconcile two network's competing standards by selecting the CDMA2000 1X standard.
5. Evidence continues to mount that new wireless data applications drive ARPUs.
6. JAVA application developers embrace the BREW distribution system.
7. The Chinese and Indian rollouts achieve significant scale.
8. Devices proliferate following the consumer electronics model by incorporating new multimedia features or applications designed to speed-up replacement sales.
9. The North American market produces favorable end-user reactions to CDMA2000 networks, in comparison, to GSM/GPRS networks.
10. End-users find 1xEV-DO's increased speed useful for wireless Internet and business transactions.
11. BREW adds enough revenue to be singled out in Qualcomm's quarterly reports.
12. The idea of Qualcomm's multimode strategy gains mindshare as an accepted solution for the peaceful harmonizing within an encompassing wireless network of networks.
13. SnapTrack's position location solution is accepted in Europe as an agnostic solution for E-911 and position location applications.
14. BREW is accepted as an agnostic platform and distribution system for wireless applications.
15. One carrier demonstrates the value of time-dynamic switching of a channel between 1X and 1xEV-DO based upon hourly or daily fluctuating demand to increase spectral efficiency and ARPUs.
16. Nokia uses Qualcomm's MSMs in its CDMA2000 1X handsets.
17. EDGE never rolls out or becomes a commercial success.
18. Data applications based on position location become popular.
19. Mindshare continues its transition away from GSM/UMTS and to CDMA2000.
20. As a consumer, you or friends of yours become excited and pleased about owning a CDMA2000 device.
If some of these events occur, the good news will send stock prices higher, at least, temporarily. What is crucial for you is whether or not your information is advantaged. Advantaged information is amplified by a favorable ratio of the event's power, where power is a function of the value added to the company's economic proposition, divided by simplicity, where the theory imposes a structure, context, and meaning on a few illuminating events within the randomly tumbling, cascading, overloading stream of news itself. Has an event merely triggered your interest? Or, has it confirmed your investing thesis?
The theory of dynamic paths tells you what to look for specifically and how specifically to identify and interpret an event when you see it. The unfolding pattern of events defines a dynamic path that should match the elements in the strategy that follows from seeking and gaining strategic architectural control of an emerging de facto standard. The theory says the occurrence of each correctly anticipated and identified significant event makes the other events in the posited pattern more probable. Simply put, the issue is: Do you understand an event as having a meaning that increases foresight into the probable future of Qualcomm because it has reduced residual uncertainty?
That is, from the perspective of the foresight permitted by the ideas summarized by the terms strategic architectural control, these events not only say something about (a) Qualcomm's performance, they also become validational evidence for (b) the network that links the conceptual ideas in the theory of dynamic paths to a set of posited events, and (c) of the ability of the theory's lens to focus foresight to reduce residual uncertainties. Thus, it is one thing to buy a stock on good news; it is another far better insight when you understand the implication of the news from the perspective of a theory of strategic management or investment.
Moreover, the theory also posits that some events are not only significant but also consequential, often marking inflection, turning, or tipping points that mark the milestone events that ignite scale-dynamic exponential change. (Please remember that it is the occurrence of an event that is significant, not the prediction of their sequential order or precise timing.) Here are five such strategically significant off-scale dynamic events to look for in the next 3-5 years:
1. Nokia uses Qualcomm's multimodal MSM6200 as a chip in its UMTS handsets.
2. A judicial, legislative, or political consortium presses for change or changes the provisions that restrict certain bands of spectrum in Europe to GSM or UMTS.
3. A carrier that switches to the MSM6200 demonstrates commercial success that attests to its favorable ratio of fitness compared to rival's WCDMA or multimodal chipsets.
4. The two new Chinese mobile wireless franchises to be announced by MII select either CDMA2000 or Qualcomm's MSM6200 series for WCDMA to implement their networks.
5. China Mobile adopts the GSM1x solution based on the MSM6300 because of China Unicom's success with it.
[Hallelujah! The end of my long and winding road has been reached. For me, the journey was exciting because I learned a lot, thought some good thoughts, and enjoyed writing about them. As a retired Professor, I was just doing my thing. I hope it helped. If so, can you share with me what you specifically found interesting or valuable on the message board where you read these excerpts? I am hoping to learn what specifically interested you.]
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