From the Wedgewood Partners 3Q15 investor letter; thoughts on the Jana Partners' activist investor target Qualcomm (NASDAQ: QCOM):
We incrementally added to our positions in Qualcomm at the beginning of the quarter as we believe a slowdown in the Company’s chipset franchise (“QCT”) is more than discounted by the market. Further, we think QCT is at an earnings trough, as costcontainment efforts as well as restoration of socket share at key customers (e.g. Samsung) should restore the segment to mid-teen margins. We think Qualcomm’s licensing business (“QTL”) is also being dramatically undervalued. We expect “GDPplus” revenue growth prospects and monopolistic operating margins well above 80% at QTL, and surmise that the market is assigning this business a single-digit, 2016 EV/EPS multiple, which is particularly attractive relative the “average” S&P 500 business trading in the mid to high teens multiples. We concluded that while the negative fundamental news on Qualcomm has lasted around 12 to 18 months, we think this is more than discounted in the current price and that this Company continues to have secular opportunities to grow earnings in the double-digit range.
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