Qualcomm (QCOM) stock has taken investors on quite a roller-coaster ride recently. The stock was trading around $90 earlier this month after reaching a settlement with Apple over patent royalties. The settlement also opened up the possibility that Apple will release a 5G iPhone with Qualcomm’s modem technology. However, news broke Wednesday morning that a court ruled the company violated antitrust law in the phone chips space, sending shares back to $67, as of this writing.
What’s next? Susquehanna’s Christopher Rolland remains optimistic about Qualcomm’s future, reiterating a Positive rating but cutting the price target by 15% from $100 to $85 based on the ruling. (To watch Rolland’s track record, click here)
Judge Lucy Koh ruled with the FTC, saying “Qualcomm’s licensing practices have strangled competition…” which have harmed rivals and consumers. As part of the ruling, which Qualcomm is appealing, Koh said the company must change its business practices, including renegotiating licensing agreements, offering to license its patents to rival chipmakers and no longer signing exclusive agreements with smartphone makers that block rivals.
After just recently signing a licensing agreement with Apple, Rolland says that Apple “may have the opportunity to renegotiate its long-term agreement with Qualcomm.” Though he does not know for sure how it would play out, Rolland expects Apple to “have the opportunity to break the multi-year chip agreement if they choose to use another supplier.” But while Apple may gain some power, the company still relies on Qualcomm for gettings its iPhone to 5G, so Rolland believes it will “tread lightly” with Qualcomm.
Moving forward, Rolland expects Qualomm’s legal expenses to “likely remain elevated,” as the company appeals the ruling. If the appeal is lost, Qualcomm “profitability may be significantly reduced as the judge did not believe Qualcomm could charge a royalty on the end device (handset), but rather the modem.” Finally, though Rolland says this only has a small impact, “this ruling allows for customers to more easily break long-term chip agreements,” which may cloud investors’ revenue vision for the future.
All in all, Qualcomm stock is diving as investors’ excitement about the Apple deal has waned. However, analyst are still bullish on the long-term, as Qualcomm has proved its place as a leader in 5G. TipRanks analysis of 21 analyst ratings shows a consensus Moderate Buy rating, with 15 analysts saying Buy and six Hold. The average price target among these analysts stand at $85.76, about 29% above current levels. (See QCOM’s price targets and analyst ratings on TipRanks)
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