Serious Long-term Headwinds Make Qualcomm a Risky Move Right Now

It wasn’t that long ago that Qualcomm (NASDAQ:QCOM) stock was seen as a solid long-term investment. As the largest chipmaker in the world that powers most Androids phones, it has a large portfolio of wireless patents which entitles the company to a percentage of every smartphone sold worldwide. However, things have been rocky for QCOM stock over the past several years.

QCOM Stock: Headwinds Make the Chip Maker a Risky Investment
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Instead of looking for other companies to invest in, Qualcomm allocated its resources toward a $30 billion share buyback plan. Along with that move, the company continues to choose short-term fixes instead of looking for opportunities to expand into other industries. 

QCOM Faces Licensing Restrictions

The biggest threat Qualcomm faces is the possible restrictions on its licensing agreements. The company has faced a number of lawsuits and antitrust investigations after competitors complained that the chip maker monopolizes the market. 

In May, a federal district judge found that Qualcomm used anti-competitive practices when licensing patents in its semiconductor business. Qualcomm was ordered to renegotiate its licensing agreements with more than 300 different equipment manufacturers. 

QCOM asked the judge to hold her ruling until its appeal could be heard. The argument being that once renegotiated, the company will never be able to restore those licenses to the original agreements, even if it wins its appeal. 

The judge refused but last week, Qualcomm received its first sign of good news after the Trump Administration asked an appeals court to hold off on the ruling. The company’s shares rose 5% as a result. 

QCOM Stock’s Ride is About to Get Bumpy

Midway through the year, 2019 has been full of ups and downs for Qualcomm but it hasn’t been all bad news. The company’s stock has done well in spite of its ongoing legal issues. And the company was able to successfully settle a legal dispute with Apple which worked out in QCOM’s favor. 

The fact that the Trump Administration is going to bat for Qualcomm in its legal battle with the FTC is helpful. The Department of Justice has also expressed support for Qualcomm, saying the company will likely win its appeal.

But the company continues to deal with antitrust cases from regulators in both the U.S. and Europe. These problems are unlikely to go away anytime soon. Qualcomm may be able to kick the can down the road a little while longer but it seems inevitable that at some point, the company will be forced to change its business model. 

Qualcomm still has a solid business model and its shares are up more than 30% year from a year earlier. But the company faces serious headwinds in the coming years that make it a risky investment at this point. 

At the time of this writing, Jamie Johnson does not own any shares of Qualcomm.

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