After losing its antitrust case in May, Qualcomm (QCOM) has a final chance to prove that it is not the monopoly the FTC deems it to be.
The chip titan has been facing legal struggles for over the entirety of 2019. On the domestic front, the company endured a five-month antitrust case with the Federal Trade Commission that it ultimately lost. The FTC accused Qualcomm of conducting monopolistic business practices, suppressing competitors in the wireless chip market by administering excessive licensing fees for its technology.
However, this issue has not only been problematic in the US. Internationally, Qualcomm has faced pressures from the Korea Supreme Court, which also accused the company of administering excessive royalty rates and attempted to hit the tech giant with an $870 million fine in 2016. To put these rates in perspective, QCOM offered Huawei a 2.65% rate in 2003 to exclusively use its technology, while it proposed Apple about a 5% rate in 2018. Three years later, this case in South Korea is still being disputed. Both sides gave final arguments last Wednesday, and the case is not expected to be resolved until at least mid-November.
So what should investors do with QCOM stock now? 5-star UBS analyst Timothy Arcuri believes the sidelines are the safest place to be, as he reiterates a 'neutral' rating on the stock, along with a $73 price target.
After hosting an expert call last month, Arcuri feels more confident regarding the company's ability to obtain a stay. However, even if the company does manage to win a stay, the analyst highlights that “investor convos suggest this is largely the expected outcome,” so any positive expectations for the stock may already be priced in. By August 23, Qualcomm must approach the parallel appeals process to file its brief which, according to Arcuri, is much more important than the stay itself. If the company wants to flip the switch on its legal misfortune, it must propose a powerful brief and push focus away from high royalties associated with its patent-licensing (QTL) business.
Ultimately, the word on the Street points to a sidelined majority on Qualcomm stock. In the last three months, the chip maker has landed 8 ‘buy’ ratings vs. 10 ‘hold’ and 2 'sell' ratings. The 12-month average price target stands at $78.33, which aligns evenly with where the stock is currently trading. Wall Street needs to see more from the big chip empire before getting more confident on the story. (See QCOM price targets and analyst ratings on TipRanks)