At the tech round table today, analysts are out with mixed reports on two stock giants: Apple Inc. (NASDAQ:AAPL) and QUALCOMM, Inc. (NASDAQ:QCOM). In a bullish corner, one of Wall Street’s best performing analysts sees positive consumer interest boding well for Apple. On back of domestic smartphone survey results that show where Samsung’s stronger traces are fading, Apple is gearing up to take a big bite into the market once its 10th anniversary iPhone model launches across the world. Meanwhile, another analyst explores the logic behind Qualcomm’s latest serve against Apple, warring this time over patent infringement disputes, but deeming that Qualcomm’s “[strike] back” is not enough to sway him away from the sidelines. Let’s take a closer look:
Apple Smartphone Buzz Looking Good Ahead of FQ3 Print
Top analyst Michael Walkley at Canaccord is sounding off with a confident note on Apple after his June North American smartphone surveys revealed iPhone sales are treading robustly in anticipation of third fiscal quarter earnings for 2017. In reaction, the analyst reiterates a Buy rating on AAPL with a price target of $180, which represents a just under 25% increase from where the shares last closed. (To watch Walkley’s track record click here.)
Walkley elaborates, “Our June North American smartphone surveys indicated steady sales of iPhone 7 devices through the June quarter with sales stable to improving later in the quarter as the initial Galaxy S8 enthusiasm appears to have waned in the US market. As a result, we are leaving our iPhone unit and ASP estimates basically unchanged,” finding estimates for June to align with consensus forecasts of 42 million units coupled with September expectations resting at 47 million units. Yet, in terms of iPhone ASP projections, the analyst is even more bullish than consensus, calling for a better mix of surge in memory SKU iPhones. Moreover, the analyst forecasts a boost in prices when the iPhone 8 hits come its September release.
What of Apple’s competitor Samsung with its Galaxy S8? As far as Walkley is concerned, the Galaxy S8 is no match for Apple’s “steady” iPhone revenue, with Samsung sales falling back in June, as expressed in survey results. “In fact, the steady iPhone sales were encouraging versus our expectations given our belief consumers have started to delay iPhone purchases in anticipation of new products anticipated to launch in September,” continues the analyst.
Overall, “We believe the iPhone installed base will exceed 635M exiting C2017, and this impressive installed base should drive strong iPhone replacement sales and earnings, as well as cash flow generation to fund strong long-term capital returns. We anticipate a stronger upgrade cycle in C2018 with the 10-year anniversary iPhone 8, as our surveys indicate strong consumer interest in and anticipation for new iPhones anticipated to launch in September,” contends Walkley, who forecasts “strong global sales” in the tech giant’s future thanks to its buzzed-about iPhone 8 that has all of Wall Street talking.
TipRanks analytics indicate AAPL as a Strong Buy. Out of 30 analysts polled by TipRanks in the last 3 months, 24 are bullish on Apple stock while 6 remain sidelined. With a return potential of nearly 14%, the stock’s consensus target price stands at $164.27.
Qualcomm Plays Strong Defense, But Not Enough to Banish the Risk Factor
After the close last Thursday, Qualcomm made waves against Apple, filing a patent infringement complaint with the U.S. International Trade Commission (ITC). The grounds? Qualcomm believes the tech giant had infringed on its unique, patented cellular technology in Apple’s imports and sales of iPhones and iPads. Hammering back at Apple, the chip maker is calling for a Limited Exclusion Order, which would ban specific iPhones from imported domestic entry.
From the eyes of Tim Long at BMO Capital, though QCOM’s newest move in its legal fray with Apple strategically demonstrates the patents in question “are all relatively new,” which diffuses the argument that these patents could be dismissed as “old and outdated,” he nonetheless continues to veer on the side of caution for the chip maker. Sizing up the impact of added OEMs in the bigger picture, the analyst reiterates a Market Perform rating on shares of QCOM with a $54 price target, which represents a 2% downside from where the stock is currently trading. (To watch Long’s track record click here.)
Long notes that regarding the limited ban Qualcomm wants to impose, “We believe this is being done to satisfy the public interest element, and also to show that QCOM would like to remain a partner and supplier to AAPL.”
When evaluating the timing aspect, “We believe there will likely be a determination to review the case by the ITC within 30 days. Generally an initial determination could be made within 12 months, and a final determination within 18 months. We believe AAPL would seek a stay on any injunction, if it were imposed,” adds the analyst.
Ultimately, though Long does not find the chip maker’s defensive play one out of left field, he remains sidelined on QCOM’s prospects sensing a greater risk at hand, concluding, “We are not surprised by QCOM stepping up its side of the battle. We do not expect to see any resolution from any of the legal actions for at least a year, which may make finding a settlement even harder. We do not see this negotiation as an overhang for AAPL, given the limited gross margin impact. Because the EPS impact to QCOM is meaningful, and there is a perceived risk of spreading to other OEMs, we view this as a major risk factor for QCOM, and as such we maintain our Market Perform rating.”
TipRanks analytics show QCOM as a Buy. Based on 16 analysts polled by TipRanks in the last 3 months, 6 rate a Buy on Qualcomm stock while 10 maintain a Hold. The 12-month average price target stands at $61.73, marking a nearly 12% upside from where the stock is currently trading.