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Qualcomm (QCOM): All Eyes on ‘Key Litigation Period?’ Top Analyst Weighs In

Mizuho's Vijay Rakesh believes Wall Street sentiment on QCOM hinges upon the NXPI deal and forthcoming AAPL litigation.


QUALCOMM (NASDAQ:QCOM) is walking into a pivotal time for litigation, especially with sustained challenges circling China tariffs and a question mark over its NXPI acquisition. Top analyst Vijay Rakesh at Mizuho sizes up the back half of this year and the opening half of next year as pivotal for the chip giant. Specifically, the analyst eyes the legal process getting into motion in a slew of cases where QCOM faces off against Apple in Europe, China, and the U.S.

For context, Apple is under the spotlight and may need to pay $2.5 to $4.5 billion in unpaid fees, should Qualcomm prove triumphant in the legal battle. Victory would spell out around one-fifth of the semiconductor leader’s yearly revenue, as QCOM alleges AAPL is thieving property by denying technology fees.

“We believe Europe will kick it off within the next few weeks with a number of non-FRAND patent litigation hearings which could set precedent for further patent cases in China and the U.S. We believe with a window out to July 25, sentiment rests with NXPI and upcoming Apple litigation,” writes Rakesh, who adds: “While overall sentiment is now more in the positive column despite the weekly mood swings on China and the ongoing tariff tug of war, we believe QCOM is entering a key litigation period in 2H18 with respect to Apple with implications for Huawei. Based on our conversations with QCOM, we believe there are four key buckets.”

First, the analyst highlights that an important move in the sustained litigation between QCOM and AAPL points to Munich and Mannheim court rulings. Rakesh draws note to various non-essential patents that have QCOM crying infringement against Apple- and the chip giant “could set a precedent.”

Second, Rakesh points to China hearings rolling into next month, where a stack of patent reviews in China by the Chinese Patent Review Board have commenced spanning five courts: Beijing, Fuzhou, Jiangsu, Qingdao and Guangzhou. These hearings are anticipated to continue into next month and may continue into next year. Importantly, “the precedent from Germany would be key,” comments Rakesh.

Third, the U.S. International Trade Commission (ITC) is convening next week in Washington to kickstart a hearing on QCOM’s complaint thrown at Apple for infringing three patents. Initial determination is expected by September 14th with final determination due January 14th of next year, aligning accordingly with the ITC case.

Fourth, the big AAPL machine’s initial litigation against the chip giant for withholding a monster $1 billion in payments is anticipated to be set for pre-trial come September 28th, where the company argues royalties are meant to be based on chips and not contingent upon the handset average selling price.

Glancing ahead, for fiscal 2018, the analyst calls for $22.0 billion in revenue from the giant and $3.19 in EPS. Rakesh anticipates Qualcomm’s revenue will rise to $22.8 billion by fiscal 2019 and EPS will reach $2.88.

Notably, the analyst reiterates a Buy rating on QCOM stock with a $64 price target, which implies an 8% upside from current levels.

Vijay Rakesh has a very good TipRanks score with a 76% success rate and an impressive ranking of #15 out of 4,830 analysts. Rakesh yields 31.5% in his annual returns. When recommending QCOM, Rakesh garners 3.6% in average profits on the stock.

TipRanks reveals a divided Wall Street surveying this chip giant’s prospects at hand. Out of 14 analysts polled in the last 3 months, 6 rate a Buy on QCOM stock, 7 maintain a Hold, while 1 issues a Sell on the stock. The 12-month average price target stands at $62.00, marking nearly 5% in upside potential from where the stock is currently trading.