What To Make Of The Surprise Qualcomm Antitrust Ruling

QUALCOMM, Inc. QCOM shares are down 16.3 percent this week after a judge ruled Qualcomm violated antitrust laws in imposing excessive licensing fees for its cell phone chips.

The judge ruled in favor of the Federal Trade Commission, which argued that Qualcomm took advantage of its chip monopoly by engaging in non-competitive practices. In a 233-page decision, U.S. District Judge Lucy Koh said Qualcomm has “strangled competition” in key markets. Qualcomm said it disagrees with the decision and plans to challenge it in federal appeals court in California.

Several analysts have weighed in on the ruling and what it means for Qualcomm. Here’s a sampling of what they’ve had to say.

Material Impact On Business

Bank of America analyst Tal Liana said the ruling wasn’t necessarily a knockout blow for Qualcomm and its investors, but it certainly did some damage.

“The decision goes against Qualcomm’s fundamental business model, and could materially change its licensing business model, affecting the company’s ability to monetize its patents,” Liani wrote in a note. Despite the uncertainty, he remains bullish on Qualcomm and recommends long-term investors buy this week’s dip.

CFRA analyst Angelo Zino said the ruling came as a surprise, but Qualcomm should be able to delay the financial impact while it appeals the case.

“We think forcing QCOM to change its business model will have a considerable negative impact on potential future R&D initiatives and would contradict with previous comments from the Trump administration on the importance of the company’s intellectual property,” Zino wrote.

Zino said the uncertainty will likely result in the stock trading at a contracted earnings multiple in the near-term.

Clouded Outlook

KeyBanc analyst John Vinh said the FTC decision coupled with trade war uncertainty has significantly clouded the financial outlook for Qualcomm.

“The recent unfavorable ruling against QCOM in the antitrust case filed by the FTC in addition to the escalating U.S./China trade war creates an increasingly binary outcome that is increasingly difficult to predict,” Vinh wrote.

He said bullish catalysts such as the recent settlement with Apple, Inc. AAPL and the looming 5G upgrade cycle aren’t enough for Qualcomm to overcome the near-term lack of visibility.

Ratings And Price Targets

In addition to the analysts mentioned above, several other analysts have changed their coverage of Qualcomm following this week’s ruling:

Bank of America reiterated its Buy rating and $105 target.

• CFRA reiterated its Buy rating but cut its price target to $80.
• KeyBanc reiterated its Sector Weight rating and $63 target.
• Goldman Sachs initiated a Neutral rating and $73 target.
• Edward Jones downgraded Qualcomm to Sell.
• Mizuho downgraded Qualcomm to Neutral and cut its price target to $65.

Qualcomm traded around $67.12 per share at time of publication.

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