Bear: The theory was that their product was differentiated and that no one could provide a proper substitute…do you still believe that? Do you still think switching costs are high? If there are convenient substitutes, margins get crunched.
Bear,
In the past few months I have realized I really don’t care about understanding the details of SWKS products. Even though I personally do have the expertise to understand. Just for the record …
I still believe SWKS has a significant edge in technical expertise.
I still believe SWKS has a 1 - 2 year lead on any direct competition.
I still believe SWKS products are saving their customers significant money.
But this is now a minor issue to me as I look at SWKS.
At a philosophical level I love technical expertise. But as an investor it seems technical expertise really only creates an initially viable company and possible quick short term gains. Long-term technical expertise seems far less important. I think SWKS is past the point where technical expertise is the primary concern for my investing thesis.
This will almost certainly change again as I learn more about investing, but at the moment I have three qualities I pay close attention to in a company for long-term performance:
Brand name recognition
Customer relations
Management quality
SWKS is working with the phone manufacturers to create solutions from the beginning of product development. To me this indicates good customer relations (about all I have to go on based on the limited insight we have into their interactions with their customers).
This also indicates that at least some of their products have not been comoditized, otherwise why would they need to work with customers on future design requirements?
SWKS products are in a LOT of devices. This shows good brand name recognition. People like to use known brands and individual people make purchasing recommendations. Price can of course trump brand name recognition in a corporate environment but I do not see an indication of anyone with a better price at this time.
SWKS management seems as trustworthy as any I have found. But I admit I am still learning how to evaluate how much I trust management for a company. (Side note: I never trust statements about future performance by management so I really don’t care what the CEO said about the second half of this year compared to the reality so far)
Innovation is also nice to see (and it appears SWKS is still innovating nicely), but even this seems relatively minor long-term.
Those are my best thoughts at the moment. Take them for what you will. No guarantees. 