Qualcomm Inc not only potentially secured its place as the leader the development of 5G phone chips but also managed to add another $30 billion to its market value following a settlement that is reached with Apple Inc over a legal issue. This move could also result in the company making a similar settlement in a case with Chinese etch company Huawei.
Following the announcement of the settlement deal between the two companies, there was a surge of 23 per cent in the value of the shares of Qualcomm on Tuesday and then followed it up with another 17 per cent surge on Wednesday. This resulted in the price of its stocks hitting a nearly two decade high.
This deal with Apple by Qualcomm comes at a time when the world is almost ready for a roll out of the high speed 5G technology based mobile networks and therefore this decision by the company can be a driver for putting it back the dominant position that it enjoyed in the early 2010s when the roll out of the 4G technology 0 the most advanced one then, was being done. That dominant position of the company then has helped it to dramatically increase its revenues and market share.
The chances of Qualcomm making it big in the 5G chip business and achieving a dominant position has been further made brighter by the exit of the Intel Corp form the modem chip after the Qualcomm’s settlement with Apple. Intel Corp was the exclusive supplier of chips for Apple’s iPhones last year.
“In the US, around 5G it’s Qualcomm’s world and everyone else is just paying rent,” said Dan Ives, an analyst with Wedbush Securities. “This was a game changing settlement for Qualcomm and was also a smart move by Apple to clear this noise and focus on 5G smartphones for 2020.”
Following the settlement, recommendations and price targets on Qualcomm’s stock were instantly raised by Wall Street analysts.
At least three brokerages raised their ratings and nine ratcheted up their price targets. The aggressive move was made by Stifel which raised its target by $43 to $100 which was over the median price target of $75.85.
Analysts said that it is possible for Qualcomm to regain its market dominant position which it had enjoyed at the time of the roll out of the 4G technology by taking up the market shareof Intel and possibly making as much as $2 billion annually.
For Apple, this settlement would help it to move closer to its rivals such as South Korea’s Samsung Electronics Co and Huawei with respect to development and launch of 5G enabled phones.
Issues related to patents and royalties over modems havebene the bone of contention and court cases between Qualcomm and Apple and Huawei. While the terms of the deal were not disclosed by Qualcomm, $5 billion, or about $2 per share, was withheld by Apple, believe analysts.
“We now expect an imminent settlement with Huawei which has also been withholding royalty payments, which we estimate will add another $0.50-$0.75 of EPS,” Cowen and Company analysts said.
(Adapted from WallStreetReporter.com)