It’s often stated by motivational speakers that the Chinese word for “crisis” is composed of two characters — one signifying danger, the other opportunity. It’s also embarrassingly inaccurate. This goes to show you that if the crux of an investment argument invokes “the Chinese,” stop! You might be getting had. Still, this “Chinese philosophy” is extremely relevant for tech stocks these days.
That’s because semiconductor and digital communications giant Qualcomm, Inc. (NASDAQ:QCOM) is having a year to forget. Despite the fact that it’s only early February, QCOM shares are down 18.5% year-to-date. Not surprisingly, Qualcomm is trading firmly below its 50- and 200-day moving averages. If something substantive doesn’t happen soon, it risks repeating the disaster of 2015, when QCOM lost nearly 31%.
The disaster that Qualcomm is currently facing was seen well in advance by those watching the industry closely. The crux of the issue is the company’s technology licensing business. This is the most lucrative division for QCOM, accounting for the majority of its profits. By “selling the rights to use patents that are essential to all modern mobile phone systems,” QCOM had a monopoly. That’s an incredible opportunity, so long as you don’t get caught.
Of course, they got caught. First, it was, you guessed it — the Chinese. Regulators in the world’s second-biggest economy found Qualcomm guilty of violating their anti-monopoly law. Then, individual companies began filing complaints. Finally, the Federal Trade Commission got involved in mid-January, claiming that QCOM illegally maintained a monopoly. Shares never looked the same after that, and who knows when Qualcomm will recover.
Those are questions that analysts will squabble over. But for rival tech stocks, they only have one message — better you than me. It’s not just the fact that a major competitor is falling. This is a classic case where an enemy of an enemy is a friend. Furthermore, the benchmark Technology SPDR (ETF) (NYSEARCA:XLK) is up 4.6% YTD. Granted, these aren’t the best numbers, but it’s much more preferable than what Qualcomm is going through.
While QCOM is swimming with the sharks, here are three tech stocks that are now set up to win big!
Tech Stocks That Will Win as QCOM Falls: Apple Inc. (AAPL)
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Undoubtedly, of all the tech stocks that were affected by Qualcomm, Apple Inc. (NASDAQ:AAPL) stands to be the biggest winner.
On Jan. 20, AAPL filed suit against Qualcomm, alleging that the company “withheld $1 billion in rebates in retaliation for Apple cooperating with Korean efforts to open the radio chip market.” Although it’s difficult to call a stalwart like AAPL a “victim,” the pattern of allegations is pretty damning.
First, we already saw Qualcomm violate foreign anti-competition laws, and pay dearly for it. Second, Korean manufacturer Samsung Electronics Co. Ltd (OTCMKTS:SSNLF) alleged similar shenanigans, although they later backed down. Finally, and most importantly, the FTC claimed that Qualcomm forced AAPL to use their chips to prevent competitor encroachment. For Qualcomm, Applr is its biggest customer, so the potential ramifications are deep and wide.
Of course, Cupertino isn’t going to shed any tears. Last October, AAPL “reported its first decline in annual sales and profit in 15 years,” according to The Guardian. There are serious concerns that the king of consumer tech stocks has reached peak popularity. Whatever it is, Apple needs to boost its profitability. Getting out of unfavorable contracts is a good start.
And with the world seemingly against Qualcomm, AAPL has an excellent chance of reviving itself at their expense.
Tech Stocks That Will Win as QCOM Falls: Intel Corporation (INTC)
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Although I believe that Apple will get the most benefit out of the QCOM fiasco, Intel Corporation (NASDAQ:INTC) has a strong case as well. I wouldn’t be surprised if most people viewed it as a toss-up between the two titans.
Among tech stocks, INTC is one of the most recognizable, but for the wrong reasons. Everybody knows the “Intel Inside” slogan, but the only problem is that it relates to the aging personal computer business.
It’s a common challenge for consumer tech stocks — INTC needs to find new blood. The company’s revenue growth isn’t the most consistent in the world. That’s why the partnership last year between Intel and AAPL was a much-needed step in the right direction. Up until that point, Qualcomm was the sole provider of chips for the iPhone.
In 2016, INTC stepped in to provide half the demand. Apparently, QCOM took exception to this arrangement; hence, the FTC charges of competitive foul play.
So far, the market response towards Intel stock has been mixed. Therefore, I still give the advantage to Apple. Nevertheless, encouraging signs do exist. Yes, shares are down 4% from its high of the year. However, it’s still very close to parity for the year. Furthermore, INTC remains inside a bullish trend channel that began in late summer of 2015.
The collapse at Qualcomm just gives other tech stocks more options, and Intel is happy to help.
Tech Stocks That Will Win as QCOM Falls: Broadcom Ltd (AVGO)
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While virtually all tech stocks are affected by the Qualcomm crisis, few were as glued to their TV screens as Broadcom Ltd (NASDAQ:AVGO).
As a semiconductor and communications company themselves, AVGO is a direct competitor and rival to QCOM.
Naturally, if your primary nemesis goes down hard, it raises the boat for everyone else. And Qualcomm is sinking quite nicely for the Singapore-based firm.
It’s not just the fact that QCOM has transitioned into the world’s most hated stock. Nor is it the money that they’ll have to dish out in penalties. Rather, Qualcomm will be forced to fundamentally change its business plan. If it doesn’t, government watchdogs are on standby, eager to pounce. That just gives AVGO and others a leg up. Maybe Broadcom is no saint. However, at the moment, the spotlight isn’t on it, providing a margin of comfort.
Most importantly, AVGO is making the most of its “Chinese crisis.” On a YTD basis, shares are up a smoking 16% — that’s almost the exact inverse of Qualcomm’s results. Furthermore, Broadcom is trending inside a steadily rising channel. With so much ugliness associated with its primary rival, it’s hard not to see anything but optimism for AVGO.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
