Qualcomm Wins US Antitrust Ruling; Top Analyst Says Decision Lifts Stock Overhang

Qualcomm’s shares are advancing after a US federal appeals court decision overruled a decision, which would have required the chipmaker to renegotiate licensing accords with smartphone makers.

Shares are advancing 1.6% to $110.60 in Wednesday’s pre-market trading after closing 2.3% higher yesterday. The US federal appeals court ruled against the US Federal Trade Commission (FTC) decision in 2019 which found that Qualcomm (QCOM) had violated antitrust law. The appeals court also revised an order, which demanded from the company to change its licensing accords with smartphone makers like Apple Inc. and Samsung.

The FTC had criticized Qualcomm for levying an “anticompetitive surcharge” on rival chip suppliers via its licensing royalty rates.

“The panel held that Qualcomm’s patent-licensing royalties and “no license, no chips” policy did not impose an anticompetitive surcharge on rivals’ modem chip sales. Instead, these aspects of Qualcomm’s business model were “chip-supplier neutral” and did not undermine competition in the relevant markers,” Judge Consuelo Callahan wrote in the appeals court decision.

“The panel held further that Qualcomm’s 2011 and 2013 agreements with Apple have not had the actual or practical effect of substantially foreclosing competition in the CDMA modem chip market. Also, because these agreements were terminated years ago by Apple itself, there was nothing to be enjoined,” Callahan added.

The campaign comes just as Qualcomm announced a $1.8 billion settlement agreement with Huawei which ended a long-running patent-rights dispute. The agreement includes a long-term, global multi-year patent license agreement granting back rights to certain of Huawei’s patents, covering sales beginning Jan. 1.

“The Court of Appeals unanimous reversal, entirely vacating the District Court decision, validates our business model and patent licensing program and underscores the tremendous contributions that Qualcomm has made to the industry,” Don Rosenberg, Qualcomm’s general counsel, said in reaction to the decision.

Shares in Qualcomm have recouped all of this year’s earlier losses and are now up 23% year-to-date. (See Qualcomm stock analysis on TipRanks)

Five-star analyst Kevin Cassidy at Rosenblatt Securities reiterated a Buy rating on the stock, saying that the decision removes an overhang on QCOM shares.

“We see the combination of another successful defense of its business model and the recent licensing agreement with Huawei as giving investors an additional degree of comfort as a long-term investment,” Cassidy wrote in a note to investors. “In our opinion, the US Federal Government is increasingly viewing Qualcomm’s communication technology as important for maintaining the US’ technology advantage worldwide.”

The analyst added that the favorable ruling may “lead to the US Federal Government allowing Qualcomm to sell some of its 5G chipset products to Huawei”.

The rest of the Street is cautiously optimistic on the shares. The Moderate Buy analyst consensus is based on 13 Buys, 7 Holds and 1 Sell. In light of the recent rally, the $115.82 average analyst price target implies a modest 6.4% upside potential.