Structural Headwinds, Apple Feud Weigh On Qualcomm's Outlook

QUALCOMM, Inc. QCOM's fiscal second-quarter top- and bottom-line beat is taking a back-seat to the company's multiple legal disputes, most notably with Apple Inc. AAPL.

Oppenheimer's Rick Schafer commented in a research report that Qualcomm's receivables balance reflects the approximate $1 billion, which it believes is owed to the company from Apple's suppliers. However, the analyst stated it is unclear if or even when these payments will be received.

In fact, the analyst noted that the high end of Qualcomm's fiscal third-quarter guidance implies it receives payment in full, the low-end of the guidance "doesn't account for the possibility of no payment."

Qualcomm Needs Better Diversification

Aside from Qualcomm's legal uncertainties, the analyst found other areas of concern for investors. Specifically, the company reported deliveries of 179 million MSM chips in the second quarter, which represent a 5 percent drop from a year ago after the company lost baseband share in the iPhone 7. While the company could see a lift in its June numbers from the Galaxy S8, further iPhone 8 share loss could present additional headwinds in the back-half of 2017.

Shafer also argued that Qualcomm's legal disputes reinforce the importance of diversification. While the acquisition of NXP Semiconductors does pose "above-average integration risk" the deal could be 30 percent-plus accretive in 2018.

However, this doesn't take away from Qualcomm's near-term legal headwinds, so the analyst is recommending investors remain on the sidelines.

Shares remain Perform rated with no assigned price target.

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