Qualcomm (NASDAQ:QCOM) reports its third-quarter earnings after the bell on Nov. 5. QCOM stock faces a considerable degree of uncertainty at this point. There are multiple variables in play, each of which has the potential to have a huge and lasting impact on the company’s fortunes. The 5G rollout, ongoing antitrust suits, America’s trade war with China, and QCOM’s revenue from Apple (NASDAQ:AAPL) will all figure prominently in Qualcomm’s future success — and the price of QCOM stock.
The 5G Rollout
A lot has been written about 5G, the next-generation wireless technology. QCOM stands to benefit from 5G, as the tremendous speed gains offered by the technology are expected to result in waves of consumer smartphone upgrades. However, large-scale adoption of 5G is still in the future, and it could be years before the technology is mainstream. InvestorPlace’s Faisal Humayun argues that QCOM stock already reflects the company’s short-term 5G opportunity.
The Antitrust Case
QCOM still faces ongoing antitrust scrutiny that could have a huge impact on its revenue going forward. The story of QCOM stock in 2019 has largely been shaped by the ups and downs of the fiercely fought litigation between QCOM and the government.
On May 21, a U.S. District Court judge sided with the Federal Trade Commission, ruling that the company had indeed violated antitrust laws. The following day, Qualcomm stock was hammered, dropping nearly 11%.
Will Qualcomm ultimately win the fight? Not everyone supports the FTC’s push to have QCOM forced into adopting FRAND (fair, reasonable and non-discriminatory) prices for the use of its smartphone modem patents. University of Southern California law professor Jonathan Barnett wrote in The Week:
“The district court’s opinion adopts the FTC’s narrative that the acknowledged pioneer behind smartphone technology has imposed a ‘patent tax’ that has resulted in allegedly exorbitant royalties and inflated prices for consumers… There’s a small problem with this theory: It’s wrong. If the ‘patent tax’ narrative were correct, we would expect to see the smartphone market suffering from escalating prices, declining output and delayed innovation. None of these things are true.”
The litigation is going to have a huge, long-term impact on the company’s fortunes — and on the value of QCOM stock. Look for the antitrust case to heat up again in January 2020, when Qualcomm’s appeal of the judge’s decision will be heard.
The Trade War
The ongoing trade war between the U.S. and China has had an impact on many tech stocks, but QCOM is one of the most vulnerable U.S. companies. According to CNBC, 65% of QCOM’s revenue comes from the Chinese market. If the two countries normalize trade relations, Qualcomm stock would get a boost. If the sides levy additional tariffs against each other, expect QCOM stock to feel the impact.
Didn’t Qualcomm win its dispute with AAPL? Yes, back in April Qualcomm won a surprise victory over Apple. The two companies ended their long legal battle, Apple agreed to make a big payment to QCOM and QCOM’s modems were put back into iPhones.
QCOM stock exploded on the news, gaining 23% in a single day. However, Apple subsequently bought Intel’s (NASDAQ:INTC) modem business and is working on getting its own 5G modems into the iPhones due to be released in 2022. If Apple accomplishes that goal, QCOM will only have two years of iPhone modem sales before once again losing the business of the world’s third-largest smartphone manufacturer.
That would not be good news for Qualcomm stock.
Should Investors Buy QCOM Stock Now?
Is now the time to buy Qualcomm stock? QCOM’s Q3 earnings are due to be reported next Tuesday. The company’s Q3 guidance didn’t exactly impress the market. Analysts had, on average, been expecting earnings per share of $1.08 on $5.63 billion of revenue, QCOM instead provided EPS guidance of between 65 cents and 75 cents on revenue of between $4.3 billion and $5.1 billion. It seems unlikely that Qualcomm stock is going to get a post-earnings boost.
If QCOM wins its antitrust case, the trade war with China ends, and the company plays a dominant role in supplying 5G smartphone modems, then the current price of QCOM stock is attractive. But with so many things up in the air, the next year or two could be a rough ride for QCOM.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.