Qualcomm (NASDAQ:QCOM) has rewarded patient investors this year with a massive gain after the company won its multi-year litigation battle against Apple (NASDAQ:AAPL). After QCOM reported its Q4 earnings — and primed the pump further by touting its expected windfall from 5G — Qualcomm stock hit a 20-year high. But after closing at $94.03 on Nov. 8, QCOM stock has retreated, currently trading around $84.
A Rough Ride for QCOM Investors
The long-term owners of Qualcomm stock had a rough ride for five years or so. In mid 2014, QCOM was trading at the $80 level, but a series of factors led to a sharp decline by the shares. Specifically, the explosive growth rate of smartphone sales had begun to slow, and at the same time, competitors were pushing into the market. Samsung began to use its own Exynos processor in some of its phones in place of Qualcomm’s Snapdragon. Taiwan’s MediaTek was overtaking QCOM in application processor sales, focusing on less expensive smartphones and tablets in China.
During that time, Qualcomm was leveraging its leadership in LTE smartphone modems in an attempt to boost its licensing revenue, a move that would eventually land it in regulatory trouble. University of California, Berkeley economics professor Carl Shapiro took the stand as part of the FTC’s antitrust case against Qualcomm earlier this year. He testified that QCOM had monopoly power over LTE and CDMA modem chips through 2016, telling the court:
“It’s my view (QCOM) harmed competition in those two markets.”
Despite its efforts, Qualcomm struggled, with QCOM stock dipping to $44 by early 2016. A series of ups and downs followed, but Qualcomm stock never seemed able to maintain any momentum. By January 2019, under regulatory investigation and embroiled in a lawsuit with Apple, Qualcomm stock slipped below $50.
2019 Has Been a Big Year for Qualcomm Stock
2019 has been a completely different story for Qualcomm stock. The turning point was in April. Qualcomm and Apple announced a surprise settlement of their legal dispute. Apple agreed to pay QCOM the royalties it had been withholding and to resume using Qualcomm’s modems in its iPhones.
QCOM stock surged 23% in a single day on that news, eventually closing above $89 in a matter of weeks. After a retreat. spurred by worries about an FTC investigation and the threat of having its lucrative licensing revenue slashed by the agency — QCOM climbed through the summer and fall as investors gained confidence in Qualcomm stock. In particular, they were upbeat on the company’s 5G opportunity.
The optimism towards Qualcomm stock hit a crescendo after the company reported its Q4 earnings on Nov. 6. The company’s revenue and earnings beat analysts’ average estimates, and Qualcomm’s CEO beat the 5G drum.
Qualcomm stock closed at $94.03 on Nov. 8.
Investors’ optimism towards QCOM appears to have waned slightly over the past several weeks, and there are multiple reasons for that.
The company’s appeal of its trial loss versus the FTC will likely be decided next year, and if it loses, Qualcomm is going to take a significant revenue hit. The trade war with China continues to drag on, and could impact Qualcomm’s business into 2020. MediaTek, Samsung and other chipmakers will compete with QCOM in the 5G market. And while QCOM won back Apple as a customer this year, Apple turned around and bought Intel’s (NASDAQ:INTC) modem business. Apple will eventually produce its own 5G modem for its iPhones and dump QCOM for good.
Some analysts advocate buying Qualcomm stock, while others recommend holding QCOM. Qualcomm had a big 2019, but the real test of whether QCOM’s growth outlook has staying power will start playing out in 2020.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.