On Thursday, a German court approved US chipmaker Qualcomm’s (QCOM) request for an injunction against Apple (AAPL), which will stop selling its iPhones 7 and 8 in its German stores. This ruling comes less than two weeks after a Chinese court also ruled in favor with Qualcomm and imposed a ban on importing or selling some iPhone models in the country. The two tech giants are engaged in an ongoing legal battle that spans multiple countries, but Qualcomm seems to have the upper hand.
Analyst Romit Shah of Nomura says that Apple’s two recent losses could pave a path to a settlement between the two, which would have a positive effect for Qualcomm. As a result, the analyst reiterates his Buy rating and $70 price target. (To watch Shah’s track record, click here)
Shah says the “favorable ruling and injunction in the Munich courts, along with China’s preliminary injunction against older iPhones last week, further weakens Apple’s negotiating position with Qualcomm, in our view. We believe this news continues to pave a path toward settlement with Apple that could boost Qualcomm’s EPS by more than 30% in FY19.”
Even though the analyst believes “Apple will appeal both decisions, we anticipate that the Munich Regional court ruling, along with the (China) court injunction issued last week, only further strengthens Qualcomm’s position in negotiations with Apple.” The analyst further believes “these two rulings likely push Apple closer to a resolution with Qualcomm. Should Apple and Qualcomm reach a final QTL resolution, we estimate a settlement could result in an incremental $1.5-2.4bn in annual revenues and $0.90-1.35 in EPS (assuming Apple is roughly 60% of disputed units).”
Overall, Wall Street is optimistic about Qualcomm and its fight against Apple. TipRanks analysis of 17 analyst ratings on the company shows that eight analysts recommend Buy, while nine recommend Hold. The average price target is $68.42, representing a 22% upside to its current price. (See QCOM’s price targets and analyst ratings on TipRanks)