Market Overview

Qualcomm's Apple Quarrel Likely To Remain Overhang Despite Strong Quarter

Qualcomm's Apple Quarrel Likely To Remain Overhang Despite Strong Quarter
Related AAPL
Benzinga's Option Alert Recap From October 19
Apple Tumbles Off Speculation Of Low iPhone 8 Production
Beached-Whale Breakouts Plague Apple, Facebook, Google Despite S&P 500 At Highs (Investor's Business Daily)
Related QCOM
As iPhone Outlook Is Tempered, So Too Baird's Himax Estimates
9 And Counting: Qualcomm's NXP Buyout Offer Deadline Extensions Could Continue

QUALCOMM, Inc. (NASDAQ: QCOM)'s second-quarter earnings beat is overshadowed by an ongoing quarrel with Apple Inc. (NASDAQ: AAPL), at least according to Canaccord Genuity's T. Michael Walkley.

Walkley stated in a research report that Qualcomm's earnings per share in the second quarter of $1.34 was "well above" his $1.20 per share estimate. In fact, the overall earnings report could have been even more strong if it wasn't for a new licensee dispute stemming from Qualcomm not recognizing $150 million in high-margin QTL revenue.

However, the analyst argued that the despite the strong earnings report, the ongoing quarrel with Apple is showing signs of carrying over well into next year. Specifically, Qualcomm disclosed that Apple's ODM partners including Foxconn and Pegatron underpaid Qualcomm around $1 billion which is the amount Apple believes it is owed relating to a Cooperation Agreement.

Materially Lower Apple Royalty

Walkley noted that Qualcomm's underpayment was due to Apple withholding $1 billion of payments to its ODM partners. In turn, the ODMs under-payed Qualcomm and it remains unclear if Apple will pay the ODMs in full.

As such, the analyst pointed out that Qualcomm's guidance range for the third quarter assumes "some level of underpayment" from Apple's ODM partners although the low-end of the guidance range does assume some royalty payments for iPhone devices.

However, Walkley argued whether Qualcomm recognizes any iPhone-related royalty revenue in the near term; Qualcomm's stock is already assuming "materially lower" Apple royalty payments. This leads the analyst to believe that Qualcomm and Apple will eventually reach an agreement.

"We believe the current share price is assuming some worst case scenario outcomes," the analyst concluded. "Therefore, we believe Qualcomm is an attractive investment opportunity for longer-term investors during this time of uncertainty."

Walkley maintains a Buy rating on Qualcomm's stock with a price target lowered from $76 to $75.

Related Links:

25 Stocks Moving In Thursday's Pre-Market Session

Qualcomm Downgraded Amid iPhone 8 Share Loss
Image Credit: By Ryo FUKAsawa -, CC BY 2.0, via Wikimedia Commons

Latest Ratings for AAPL

Oct 2017KeyBancUpgradesSector WeightOverweight
Oct 2017BarclaysMaintainsEqual-Weight
Sep 2017PiperJaffrayMaintainsOverweightOverweight

View More Analyst Ratings for AAPL
View the Latest Analyst Ratings

Posted-In: Analyst Color Earnings Long Ideas News Guidance Reiteration Analyst Ratings Tech Best of Benzinga


Related Articles (AAPL + QCOM)

View Comments and Join the Discussion!

Partner Center