Why Qualcomm, Inc. (QCOM) Stock Can’t Pick Itself Up Anytime Soon

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As a long-time San Diego resident, I have to show love to the core institutions of “America’s Finest City.” Among publicly traded stocks, we have no greater representative than Qualcomm, Inc. (NASDAQ:QCOM). With over 9,400 workers, Qualcomm is ranked No.8 among San Diego’s top employers. In fact, if you take a random sampling of ten educated San Diegans, there’s a good chance at least one of them has worked for QCOM.

Why Qualcomm, Inc. (QCOM) Stock Can't Pick Itself Up Anytime Soon
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Naturally, QCOM stock is our Apple Inc. (NASDAQ:AAPL) or Microsoft Corporation (NASDAQ:MSFT).

We’re unequivocally proud of this institution. For decades, San Diegans spent their Sundays watching the Chargers at Qualcomm Stadium, affectionately known as “The Q.” During the time the NFL was in this city, the QCOM brand was what most visitors and television viewers recognized. Of course, that was the time when things were normal.

Qualcomm stock, if you haven’t noticed, isn’t doing so well. Year-to-date, shares are down 13%, and there’s plenty of 2017 left to go. And because the telecommunications technology sector isn’t exactly a friendly one, the forecast for QCOM stock doesn’t look great.

I can guarantee you that no San Diegan wants to see Qualcomm stock collapse, and it will not.  However, as a viable investment moving forward, you have to question it.

QCOM Stock Is Knee-Deep in Trouble

InvestorPlace writer Tom Taulli hit the nail on the head with his analysis of QCOM stock. The technology giant is stuck in a minefield of litigation and is getting no mercy. “While one was settled, which included a $975 million payment to the Chinese antitrust authorities, there are currently active suits in the U.S., Europe and Korea, which recently filed a claim for $873 million. Then of course, there is the $1 billion suit from Apple Inc.”

At issue is what competitors deem unfair business practices by Qualcomm. According to Taulli, the company did not incorporate a straight royalty per unit for their patented technologies. Instead, the royalty was based on the “percentage of the price of the device.” As Apple CEO Tim Cook explains, “it’s somewhat like buying a sofa and you charge somebody a different price depending upon the price of the house that it goes into.”

Of course, QCOM can just settle these disputes outright and be done with it. It has nearly $7 billion in cold, hard cash and another roughly $4 billion in liquid securities. On the other side of the table, AAPL isn’t hurting for money either.

What competitors want to strike at is the business model. The vast majority of revenue generated by Qualcomm is from its product licensing. Any negative impact, no less a paradigm-shifting event, could send QCOM stock spiraling. Again, I don’t think Qualcomm stock would disintegrate, but without licensing, it’s simply not worth its price tag.

The Joyride for Qualcomm May Be Over

We can discuss bullish arguments to help offset the negative implications of these lawsuits, but I don’t think it’s necessary. Qualcomm’s semiconductor partnership with Microsoft makes for a nice blurb. Its $7 billion buyout proposal for NXP Semiconductors NV (NASDAQ:NXPI) will get some juices flowing. But when licensing deals make up nearly 75% of your sales, QCOM stock will not pass unfazed.

QCOM stock, Qualcomm
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Source: Source: JYE Financial, unless otherwise indicated

Qualcomm stock may be in the middle of forming a bearish head-and-shoulders pattern since early February. If so, QCOM is on a date back to $52 soon.

But I think it’s going to be much worse than that. After a severe drop, such as the one QCOM stock suffered, investors will look for confident sentiment. Instead, volume has declined, while QCOM shares enjoy their small recovery rally. That signals no confidence, and therefore, I have no interest.

It sucks to beat up on a San Diego company, but Qualcomm made its own bed. Now, they have to face the consequences. For investors looking for a discounted opportunity, I would hold off on pulling the trigger on QCOM stock. Qualcomm stock has more ugly left before it starts looking attractive.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/qualcomm-inc-qcom-stock-cant-pick-up/.

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