Qualcomm Inc. (NASDAQ:QCOM) finally reached a compromise with Apple (NASDAQ:AAPL) last month regarding licensing rights and Qualcomm being the supplier of 5G to Apple. Since reaching an agreement, Qualcomm stock has surged over 50% which is seen as a big step for the chipmaker.
Huawei settlement could take time
Investors expected the agreement open the path towards a similar agreement with Chinese smartphone maker Huawei. However this is unlikely to happen any time soon following President Trump’s order to cut off supply of US tech companies to the Chinese giant.
Cannccord’s Michael Walkley thinks that the Huawei ban will have minimal effect on Qualcomm but thinks that it is likely to derail the process of reaching an agreement with the Chinese giant. Michael has given Qualcomm stock a Buy rating with a target price of $105 that is over 50% upside from the present levels.
Ban to benefit Qualcomm
Although there have been a lot of discussions regarding the agreement between the two tech companies but Michael thinks that the subject has been exaggerated. He indicates that Huawei contributes less to Qualcomm earnings relative to Apple. The analyst believes that the loss of market share in the smartphone business by Huawei is likely to be a net gain for Qualcomm since the share loss is likely to handset OEMs paying full royalties to the company.
Michael has projected that the company will get royalty payment of $150 million from Huawei according to its guidance. He expects EPS for FY2021 to be $7.52 if the companies don’t reach an agreement and if they do it will be $8.0. He holds that the $0.5 addition of the royalty agreement s just one quarter of what Apple contributes and since they will be supplying 5G an additional EPS of around $2 is expected.
Qualcomm plunged by close to 12% yesterday after a ruling that they improperly suppressed competition among chipmakers and used their position to levy huge licenses. However analysts are remaining bullish on stock despite the turn of events.
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