Qualcomm (QCOM) is positioned close to the eye of the macro storm. A heavy reliance on China and uncertainty concerning near-term smartphone supply and demand dynamics have contributed to a difficult 2020 for QCOM, with shares down 12% year-to-date.
However, despite renewed tensions between the U.S. and China, Qualcomm could actually benefit from the worrying developments, so says Canaccord Genuity analyst Michael Walkley.
The recent Department of Commerce ban on Huawei, preventing it from purchasing semiconductors from U.S. companies, has ignited fears of retaliatory moves against companies such as Apple and Qualcomm. That being said, Qualcomm’s management noted Huawei is not a significant customer. In fact, Walkley argues the move could be good for the chipmaker.
“We view any Huawei smartphone share losses, which are likely with it not gaining access to Android software, as a benefit to Qualcomm as its leading QCT customers such as OPPO and Vivo are likely to gain market share from Huawei,” said the 5-star analyst.
While there’s a risk of a Chinese retaliation, Walkley notes that a large number of Chinese OEMs are dependent on Qualcomm in order to compete with tech giant Huawei. And with ambitions to sell more global smartphones, Qualcomm is the “primary to only choice in certain markets for these OEMs to have working products.”
Furthermore, Walkley believes Chinese semiconductor company HiSilicon (owned by Huawei) cannot currently sell its modems to Qualcomm’s Chinese OEM customer base.
If trade tensions negatively impact Huawei’s HiSilicon business, Qualcomm could benefit as Huawei loses both market share and the “ability to eventually compete in the merchant market,” if HiSilicon is stopped from making innovative chipsets at TSMC.
Walkley summarized, “While the escalating China and U.S. relations is a concern to monitor and likely adds to the delays for Qualcomm in reaching an agreement with Huawei, we believe Qualcomm could come out as a net beneficiary if Huawei is adversely impacted since Huawei doesn’t use material volumes of Qualcomm chipsets and does not pay royalties currently.”
Bearing this in mind, the 5-star analyst rates QCOM a Buy and has a $102 price target on the shares. There’s upside of 31% should the target be met in the coming months. (To watch Walkley’s track record, click here)
The analyst community remains cautiously optimistic when considering Qualcomm’s prospects. A Moderate Buy consensus rating is based on a mix of 8 Buys, 7 Holds and 2 Sells. The average price target hits $86.86 and implies possible gains in the shape of 11%. (See Qualcomm stock analysis on TipRanks)