Predicting the past is easy

CNBC yelling head Jim Cramer trashed Qualcomm’s stock on Tuesday night, after last week’s disappointing earnings guidance for the current quarter. (This is by someone who earlier this month owned the shares).

Qualcomm attributed the problem to delayed 3G demand in developing countries while smartphone prices are falling in the developed countries. Both hurt the company’s royalties. One analyst suggests that the company also faces increased 3G chipset competition, particularly selling to Samsung.

Shares fell 14% Thursday on the news — it largest drop in almost 10 years. Most of the fall came in after hours trading Wednesday after the earning announcement.

So on Tuesday night, Cramer talked about Qualcomm using various technical analysis tools, concluding that most of the selloff was over:

Cramer said this doesn’t mean that Qualcomm is done going down, even as it has some 2010 catalysts such as share gains in Nokia, the increased adoption of 3G and 4G smartphones, new design wins, and expanding markets like netbooks, iPads and eReaders that use QCOM’s technology.
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The bottom line: Qualcomm is guilty before its proven innocent, Cramer said. On Wall Street that means investors need not one but two quarters before anyone can ever “fall in love with Qualcomm again.”

To this, one of CNBC’s readers replied [links added by me]:

OK, let me get this straight. Cramer tells us on January 7th of this year that Qualcomm is one of the 10 players of his "mobile Internet tsunami". On that day Qualcomm was trading at $49.15. Now, when it is south of $40.00, he's suggesting that we bail. Hummmmmm. Better yet, if you put 10K on all of the mobile internet plays outlined by Mr Kramer and posted by CNBC on Jan 7th, you would be down about $18K. Not bad for 3 weeks work!

In other words, predicting the past is always easier than predicting the future.

This reminds me a little bit of the Apple shares that I owned in the 1980s — the shares would go up on good news and down on bad news. When Steve Jobs came back, few anticipated his ability to deliver a decade of sustained economic growth.

After the shares collapsed at the end of the telecom bubble, Qualcomm had a good run from 2002 to 2006, but has been going sideways every since. The drivers of its income growth have been are industry growth and diversification into new markets, with most of the bottom line coming from the former. However, as markets mature, competition increases. The commoditization facing its main customers (handset makers) is not going to end any time soon.

Disclosure: Several years ago, I sold all my Qualcomm shares, because I decided that writing about Qualcomm and other San Diego telecom companies was more uniquely important to my career than owning shares was to my portfolio.