Qualcomm Analysts Hail Huawei Settlement As Asserting Company's 5G Tech Leadership

QUALCOMM, Inc. QCOM shares are advancing strongly Thursday in reaction to solid quarterly results reported by the wireless technology company and a long-term patent agreement it announced with Huawei.

The Qualcomm Analysts

Rosenblatt Securities analyst Kevin Cassidy maintained a Buy rating and increased the price target from $105 to $130.

Raymond James analyst Chris Caso reiterated a Strong Buy rating and lifted the price target from $110 to $120.

Oppenheimer analyst Rick Schafer maintained a Perform rating.

Piper Sandler analyst Harsh Kumar reiterated a Neutral rating and hiked the price target from $80 to $110.

Owning Qualcomm as a 5G Pure Play: Qualcomm's quarterly results not only beat expectations but also demonstrated the company's leadership in the growing 5G market, Cassidy said.

Upside to Qualcomm Technology Licensing, or QTL, revenues along with better-than-expected 5G mix more than offset Mobile Station Modem, or MSM, shipments coming at the low end of the estimated range, the analyst said.

The solid non-GAAP EPS beat was facilitated by QTL and 5G products, which carry higher margins. The Huawei patent agreement confirms Qualcomm's 5G technology leadership, according to Cassidy.

"We continue recommending investors own QCOM as a 5G pure play," Rosenblatt said.

See Also: Qualcomm To Invest $97M In India's Jio Platforms, Joining Facebook, Intel As Stakeholders

RayJay Analyzes Impact of Huawei Settlement Agreement: The Huawei settlement adds about $900 million to $1 billion to QTL revenues annually and about 70 cents in annual earnings, Caso said. Huawei now represented the last major OEM to sign a license agreement with Qualcomm.

The September quarter guidance, according to the analyst, doesn't include the full impact of iPhone due to late launch. This, therefore, represents a significant catalyst for December.

"All the while, content in China 5G phones is strong, and 5G worldwide penetration remains in its early stages," Caso wrote in the note.

The analyst hiked his fiscal year 2022 EPS substantially higher to $7.27, largely driven by Huawei.

Oppenheimer Remains Sidelined: The $1.8 billion payment from Huawei to cover previously unpaid licensing fees will be recognized in the fourth quarter, but will be excluded from non-GAAP revenues, Schafer said.

Additionally, the company signed a long-term agreement with Huawei to supply 5G baseband, echoing the Apple Inc. AAPL agreement last year.

"Near term, we see QCOM benefiting from having Apple and Huawei back in the model," Schafer said in the note.

Long term, the analyst sees a difficult set-up as smartphone units go ex-growth, merchant baseband competition heats up and top customers bring up internal baseband capabilities.

Transition to 5G Working In Qualcomm's Favor: The Huawei agreement should provide a solid bump to quarterly licensing revenue moving forward, Kumar said.

Management estimates that global handset units declined 20% year-over-year in the June quarter and expects units to be down 15% in the September quarter, the analyst noted. The company, however, expects 5G units in calendar year 2020 to come in at the high end of the 175 million to 225 million range.

"Overall, we feel the transition to 5G, along with the RF attach, is working in Qualcomm's favor, as seen in the $750 million of RFFE revenue in the September quarter," Piper Sandler said.

QCOM Price Action: Qualcomm shares were rallying 13.6% to $105.77.