The Street Debates Qualcomm's Q3

Chipmaker Qualcomm, Inc. QCOM reported Wednesday with fiscal fourth-quarter results that arrived better than expected, but the Q1 guidance disappointed. Here's how three Street analysts covering the stock reacted.

The Analyst

Canaccord Genuity's T. Michael Walkley maintained a Buy on Qualcomm with a price target lowered from $86 to $75.
Charter Equity Research's Edward Snyder downgraded from Buy to Market Perform.
BMO Capital Markets' Tim Long maintained a Market Perform with a price target lowered from $64 to $60.

Canaccord Focuses On The Long Run

Qualcomm's Q4 print was "strong," although the implies a "disappointing" start to the new fiscal year, Walkley said in a note. The company's Qualcomm Technology Licensing business should improve in the back half of the fiscal year from Android OEMs and the start of 5G smartphone shipments, the analyst said.

Beyond the back half of fiscal 2019, Qualcomm is likely settle an ongoing dispute with Apple Inc. AAPL and China's Huawei, Walkley said. Even if the settlement translates to a 50-percent royalty reduction per iPhone to $5 per unit and Huawei lowering its payments, the case for Qualcomm's stock to rise to $75 can still be justified, according to Canaccord.

Charter Equity Sees Core Problems

Qualcomm's quarterly print shows the company faces a core problem in accelerating erosion in both the baseband and licensing businesses, Snyder said in the downgrade note.

The attempt to make use of below-the-line benefits such as stock buyback activity is a sign that Qualcomm is stalling for time in the hopes of benefiting from an injunction-induced settlement with Apple or others, the analyst said.

Even if Qualcomm were to settle all outstanding licensing disputes immediately, it would still face declines in modem share and royalty rates, as settlements will likely result in lower blended rates, Snyder said.

Qualcomm's position is unfavorable, as many of the largest OEMs are shifting toward internal solutions, according to Charter Equity.

BMO: Buybacks, Taxes A 'Mask'

Qualcomm's exclusion from Apple's supply chain in the new iPhone lineup is confirmed, and it contributed to weaker mobile station modem chip guidance for the December-ending quarter, Long said in a note. With no indication of a coming resolution with Apple, Qualcomm's revenue should remain "depressed" for some time, the analyst said.

Qualcomm's $21-billion buyback in the quarter with $9 billion in authorization remaining coupled with tax benefits merely serves as a "mask" for otherwise weak guidance, according to BMO.