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Dear Mycroft -

I'll try to take a swing at this one. From the easiest to the hardest:

Then if you check out the news you will find that Qualcomm will be selling 6.9 million shares in a public offering thus adding another 6.9 million to the diluted 188.

This was, IMO, absolutely the right thing to do. Qualcomm was added to the S&P 500, and the stock price was rising in anticipation of the index funds needing to accumulate it. Qualcomm announced the secondary as an "accomodation" to the funds. Because of the demand, they were able to raise $1 billion in less than a month with only $600,000 in fees to the underwriters and with no road show. And the Wall Street crowd thinks that QCOM did them a favor! Since the artificial demand for the stock would create only a short term blip, QCOM essentially stole profits from the pockets of the short term traders and put the money to work for long term shareholders. Since Qualcomm is growing very rapidly there is no question that they will need this money, and would have needed to raise capital one way or another. I expect them to be able to get a very attractive return on the money, and I applaud them for doing this.

I would like to see if those 38 million shares are options or what???

The increase in the number of diluted shares is directly attributable to the rapid rise of Qualcomm's stock price. Qualcomm figures dilution using the treasury stock method. This means they count only those shares which would be exercised at less than the average market price of the common for the period. Obviously option strike prices are being met very quickly, and the dilutive effect is much more rapid than usual.

In this latest report there is one large chunk of diluted shares which is clearly identifiable. 18,727,706 shares of previously existing convertible preferred stock is now counted amongst the diluted shares. In previous reporting periods they were not because the conversion price was higher than the selling price.

The balance of the shares would certainly be stock options which are excersisable at less than the selling price. These are payable to a broad base of employees and are not restricted to a select few. Reams could be written (and have been) about the plusses and minuses of issuing stock options to employees. My take on this is that it boils down to whether you trust management or not. I hold Qualcomm's management in high regard, and so I believe that they are using the most effective means at their disposal for compensation of their employees. I am always alert for Disney style abuses of stock option plans, but I see no evidence of that here. In fact, in perusing the proxy for the 2/99 annual meeting I see a couple of items which make me believe that the opposite is the case:

The aggregate fair market value, determined at the time of grant, of the shares of Common Stock with respect to which incentive stock options granted under the Option Plan are exercisable for the first time by an optionee during any calendar year (under all such plans of the Company and its affiliates) may not exceed $100,000.

Under the terms of the Option Plan, the Board cannot reprice options issued pursuant to the Option Plan to the Company's executive officers or directors

About the only tools I have for evaluating Qualcomm's stock option plans are common sense, basic arithmetic skills, and the information available in the company's filings. These are often not enough on a subject this complex, and I would welcome input from anyone who can explain the ins and outs of how to assess the impact of these things. However, Qualcomm management has always appeared to me to be working in the best interests of shareholders, and I would be surprised if they are doing anything underhanded here.

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