Qualcomm Shares Rally On Settlement With Apple

In a press release announced yesterday, Apple (Ticker Symbol: AAPL) and Qualcomm (Ticker Symbol: QCOM) have settled their royalty dispute amongst each other.  The agreement includes an undisclosed payment that Apple will have to pay Qualcomm as well as a chipset supply agreement indicating that Apple will purchase chips from Qualcomm for use in its future iPhones.

After the news broke, Qualcomm’s market cap skyrocketed, rising $14.5 billion, to a total market cap of more than $84 billion.  This was Qualcomm’s best one-day performance since 1999, with the stock rising more than 20% on the news.  Qualcomm’s major competitor Intel, (Ticker Symbol: INTC) which reported its earnings on Tuesday, gapped up over 3% on the news.

Apple and Qualcomm began a trial in Federal Court on Monday in San Diego that was supposed to last for weeks.  The case was originally filed by Apple in 2017 but now each of the companies is asking for billions of dollars in damages. Apple purchased modem chips from Qualcomm for many years under Qualcomm’s high prices and Qualcomm required Apple to pay licensing fees for its patents.  Apple felt as if Qualcomm was taking advantage of its position as one of the only major cell phone technology suppliers and Qualcomm accused Apple of withholding payments from a royalty agreement between the two companies.

Apple has been using Intel modem chips instead of Qualcomm’s chips in the new iPhone models released in 2018. Analysts had suggested that the dispute between the two companies would slow Apple’s plans for it to expand into the 5G network.  Qualcomm is one of the top suppliers of 5G network chips and the agreement with Apple could open up the possibility of Apple releasing a 5G compatible phone sooner rather than later.

Qualcomm started off sluggish in the first quarter of 2018.  After beginning a minor downtrend to start the year off, Qualcomm’s stock came to life after good earnings reports and guidance in the second and third quarters of 2018, sending the stock on nearly a 50% rally higher.  Volatility came into the stock market in the fourth quarter of 2018 sending Qualcomm’s stock price lower and giving back all of the year’s gains.  The stock found some life after an upbeat earnings forecast in the first quarter of 2019.  The stock proceeded to grind higher eventually trading back above its 100-day Moving Average.  The news announcement this week sent the stock ripping higher, gaining over 30% in just two days.

(Chart above courtesy of ​www.tipranks.com​)

Based on a survey of 20 analysts across Wallstreet, the average price target for Qualcomm’s stock is $77.13.  According to that number, the stock is priced at a small premium relative to Wallstreet’s analysts and could be considered slightly overvalued around current levels near $79.08.

The new agreement between Qualcomm and Apple is for six years with a two-year option to extend the deal.  The settlement also includes the one-time non-disclosed payment to Qualcomm from Apple. This new agreement between Apple and Qualcomm clears the way for both companies to focus on 5G technology.  Apple users should keep their ears open for future news on the iPhone 5G, hopefully coming soon.

 

 


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