Legal Battles, Merger With NXP Set Up Catalysts For Qualcomm This Year

Despite QUALCOMM, Inc. QCOM’s ongoing legal battle with Apple Inc. AAPL, Canaccord Genuity analyst Michael Walkley still sees the company as a solid investment for long-term traders. Walkley reiterated a Buy rating and $70 price target (see Walkley's track record here).

Qualcomm managed to beat the Street’s estimates for its third-quarter earnings, but was trading down afterward due to the 40-percent profit slump resulting from Apple withholding royalties.

The tech giants’ legal battle is getting more intense, now that Apple’s manufacturers are joining in and throwing their weight into an antitrust suit against Qualcomm.

The company also did not recognize a second licensee, which Walkley believes to be Samsung.

Overall EPS was strong though because of gains in the CDMA Technologies segment. A diverse product mix and opportunities for growth in mobile and adjacent markets drove the upside. Management highlighted the segment’s 30 percent growth year over year.

Walkley’s revised model now accounts for this growth, and fully discounts any potential licensing revenue from Apple and Samsung Electronic SSNLF. Despite billions of dollars no longer being in the model, the stock earned itself a Buy.

The analyst also expects the merger with NXP Semiconductors NV NXPI will close and help to turn Qualcomm into an industry leader in mobile, Internet-of-Things and automotive semiconductors.

Others See Major Risk Ahead

Charter Equity Research’s Edward Snyder agrees with several of Walkley’s views, but doubt the company will be able to come back from Apple’s severe blows. Snyder reiterated a Market-Perform rating on Qualcomm shares.

The analyst fears smaller royalty rates from phone manufacturers in Asia will spread across businesses and regions, permanently hurting Qualcomm’s future earnings.

“In our twenty years of covering [Qualcomm], we’ve witnessed many major licensing battles nearly all of which we believe the company has lost,” said Snyder in a note. “While the company articulates a lot of good reasons why the Apple dispute shouldn’t cause a permanent decline in the blended rate, history suggests it will.”

At time of writing, Qualcomm shares were down 4.28 percent at $54.35. NXP shares were flat on the day.

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