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Are Legal Headwinds Clouding Qualcomm’s Earnings Potential?

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Part 18
Are Legal Headwinds Clouding Qualcomm’s Earnings Potential? PART 18 OF 22

Exploring Analysts’ Opinions on Qualcomm

Analysts have mixed opinions on Qualcomm

Qualcomm (QCOM) reported better-than-expected revenue in fiscal 3Q17 as its chipset business witnessed strong growth, indicating that it had not lost any more of Apple’s (AAPL) business to Intel (INTC).

On the other hand, Qualcomm reported disappointing fiscal 4Q17 EPS (earnings per share) guidance because Apple and another licensee are unlikely to pay royalties amid ongoing legal issues. Therefore, analysts have “hold” recommendations on QCOM stock.

Exploring Analysts’ Opinions on Qualcomm

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Raymond James

Raymond James analyst Tavis McCourt believes that investors are pessimistic about the outcome of the Apple lawsuit. If Qualcomm wins the case, its stock could peak at $80, and if it loses, its stock could fall below $30.

McCourt also stated that early signs show that Qualcomm’s share of iPhone 7S builds is almost the same, but this share could change for either the better or the worse with the passage of time.

Optimism about Qualcomm

Rosenblatt analyst Jun Zhang has a $56 price target for Qualcomm. Zhang is cautiously optimistic that the company will reach a settlement with Apple. He’s stated that even if Apple builds modem solutions in-house, it won’t be able to replace Qualcomm’s modem in the near term.

Morgan Stanley analyst James Faucette has a $60 price target for Qualcomm, as he believes that the company’s NXP Semiconductors (NXPI) acquisition is more important than its short-term earnings. He expects NXPI to add $1.22 to the combined company’s EPS in fiscal 2018.

Apple lawsuit

Although lawsuits between component manufacturers and licensing technology businesses are aggressive, they don’t tend to stop companies from working together. For example, Apple and Samsung (SSNLF) have been in many such battles since 2011, but they’re still working together.

Similarly, the current lawsuit won’t stop Qualcomm and Apple from collaborating with each other. Apple likely won’t ditch Qualcomm for Intel because Intel’s modems are slightly inferior compared to Qualcomm’s, and the use of inferior technology could negatively affect Apple’s iPhone sales.

JPMorgan Chase analyst Rod Hall believes that the two companies will negotiate and return to normalized royalty levels in 2019.

Chipset business

Qualcomm witnessed supply shortages for its Snapdragon 835 as the initial ramp-up of Samsung’s 10 nm (nanometer) node resulted in lower yields. Demand for the Snapdragon 835 was so strong that Samsung used the entire output for its Galaxy S8, leaving LG and other handset makers waiting in line. Moreover, Qualcomm’s efforts in the mid-range phone space are helping it to take some market share from MediaTek in China.

Adjacent markets

Qualcomm’s future growth prospects look bright as the company diversifies into adjacent markets such as automotive, IoT (Internet of Things), PC (personal computer), and server and other technologies such as fingerprint sensor and VR (virtual reality).

Next, we’ll look at bearish analysts’ opinions on QCOM.

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