Despite handily beating earnings estimates, Qualcomm, Inc. (NASDAQ:QCOM) could not slay the bears stalking its stock.
The company said it earned $1.2 billion, 80 cents per share, on revenues of $5.2 billion for the quarter, easily beating a “whisper number” of 63 cents. But the shares rose just five cents in overnight trading and were due to open at $49.80 each, down almost 25% so far in 2018. It then waffled around the $50 point for most of the day.
The opening price is close to the company’s low of September 9, which came after a judge ruled that Apple Inc. (NASDAQ:AAPL) lawsuits against it could proceed. The two companies have been at legal war since early 2017, with Apple protesting Qualcomm’s royalties for using its patents.
The conflict eventually brought in an unsolicited bid from Broadcom Inc. (NASDAQ:AVGO) which Qualcomm survived only after the Administration blocked it, fearing a leakage of technology to China.
Where Do We Go from Here?
Qualcomm has been fighting for its monopoly rights over cellphone tech for three years now. It beat back efforts to cut royalties from China, and eventually settled with Samsung Electronics (OTCMKTS:SSNLF), which complained the chips ran too hot.
The disputes take many forms, but they all amount to the same thing. Rival chipmakers want a piece of Qualcomm’s market, and Qualcomm is fighting them in court with patents that are necessary to produce the chips.
Since these disputes began in 2015, Qualcomm stock has bounced between about $50 per share and about $80 per share. The latest fall is based on analysts concerns Apple will switch to its own and Intel Corp. (NASDAQ:INTC) chips in the iPhone, that Samsung is moving to its own homegrown processors, and that China’s Huawei will power phones made there.
Qualcomm’s own outlook is that China will come around, but that the dispute with Apple is unlikely to end soon, meaning years of royalties it claims Apple owes won’t be hitting its books. The company also could not say when its planned acquisition of NXP Semiconductors NV (NASDAQ:NXPI) might be completed. Chinese regulators have yet to approve it, and the deal may yet become a victim in the growing trade conflict between China and the U.S.
Could Mollenkopf Leave?
CEO Steve Mollenkopf, who took his present position in 2014 after it was rumored he might take the job at Microsoft Corporation (NASDAQ:MSFT) that eventually went to Satya Nadella, has been taking heat for his hardline position, and predecessor Paul Jacobs left the board recently after reports emerged he was trying to take the company private along with Softbank Group Corp. (OTCMKTS:SFTBY).
Even if Mollenkopf were replaced, and the Apple dispute were settled, however, it would provide only a short-term fix for Qualcomm’s troubles.
As mobile phones have become the center of personal technology during this decade, what they contain and how they work has become an intense, global political issue, not just a business one.
It’s not about speeds and feeds anymore. It’s about control. It’s about control over the market, control over the price of the device, and control over the underlying technology on which the global economy rides.
Still, a Bargain?
In this environment, Qualcomm’s demands for its “intellectual property rights” are trumped by global politics. With its market cap of under $74 billion, it’s a minnow in a sea of sharks.
At the present price, however, it’s one of the world’s great bargains. It sells for less than four times annual revenue. The dividend rate of 62 cents per share, easily sustained by current earnings, represents a yield of almost 5%, and the possibility of a profitable buyout, or an end to the Apple dispute, makes it very tempting at its current price.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT.
