How CEVA Will Benefit From The Apple/Qualcomm Litigation

CEVA, Inc.CEVA would be an indirect beneficiary of the legal spat between Apple Inc. AAPL and QUALCOMM, Inc. QCOM, according to a note from Benchmark.

Qualcomm Vs. Intel: Thin Modems

The Apple-Qualcomm litigation suggests souring relations between the two companies, and the iPhone maker could procure more thin modems from Intel Corporation INTC. This potential move would benefit CEVA, as Intel’s thin modems utilize CEVA’s DSP (digital signal processor), while Qualcomm’s thin modems do not.

Intel and Qualcomm are the two primary thin cellular modem suppliers for Apple’s various iPhone 7 models. Qualcomm’s modems power CDMA versions, while Intel’s modems are used in GSM/non-CDMA networks.

CEVA To Maintain, Gain Market Share

“With the suit pitting Qualcomm and Apple against one another, and as validated with AT&T Inc. T’s October certification of Intel’s 4th generation modem, it is likely CEVA will maintain or gain market share when Apple’s 10th anniversary iPhone is launched next fall,” analyst Gary Mobley wrote in a note.

Mobley pointed out that the fourth-generation Intel XMM7480 modem now supports CDMA networks, accomplished via the acquisition of VIA Telecom. The analyst believes Intel could gain share at Apple despite delivering only about half the downlink speed versus comparable Qualcomm modems.

“While the Intel modems has about half the downlink speeds as the comparable generation Qualcomm modem, speed are sufficient for Apple’s needs, and the 4^th -gen Intel modem handles 33 LTE bands as well as the necessary envelop tracking,” Mobley explained.

Analyst's Estimates

Mobley estimates that Apple most likely bought $500 million–$800 million worth of Intel thin modems in 2016, which would translate into $5 million–$8 million in royalties for CEVA. This in turn could bring about $0.25 in non-GAAP EPS for CEVA, based on the midpoint.

In fact, CEVA could more than double its royalties generated from Intel if Qualcomm loses all share at Apple for the iPhone 8 (10th anniversary).

At last check, shares of CEVA had risen 3.42 percent to $36.30, close to its 52-week high of $36.81. Mobley has a Buy rating on the stock, with price target of $40.