Credit Suisse Has Positive Outlook On Qualcomm's NDRC Settlement & Raised Guidance

More Key Points From Report

• NDRC settlement: As anticipated, QCOM announced a settlement with the NDRC, including the payment of a $975 million fine, as well as a rectification plan on future conduct and royalties for its QTL business. We believe the settlement removes a key overhang for the stock. We raise our EPS estimates 1%/4% to $5.04, $5.50 and believe that now QTL should be able to drive secular growth for the business. We maintain an OP with PT $80.
• Guidance raised: Could prove conservative. QCOM raised revenue guidance by $150mn at the midpoint to $27.2bn and their Non-GAAP EPS by $.05 at the midpoint to $4.95, excluding the charge from the NRDC imposed fine. We believe this guidance could prove conservative as it assumes only a six month impact for FY15. Additionally, management noted it will take time to renegotiate with existing and new licensees.
• Positive outcome: With settlement now resolved we retain our view of long term growth of 6% in unit terms and 5% in revenue terms for QTL. We believe the global rate for Chinese vendors is in excess of the 2.5% assumed in our base case valuation. We value QTL at $42/share, we assume that Qualcomm achieve a 2.5% royalty rate for Chinese vendors and that their smartphone sales share rises to 40% from 30% now. This supports our SOTP valuation of $80 ($25 for QCT and $13 net cash/share)
Shares of QCOM are trading higher by nearly 3 percent in pre-market trade at 68.90.