In a volatile year, tech stock Qualcomm (NASDAQ:QCOM) has been especially volatile. Although the roller-coaster ride of QCOM stock reflects the broader upsets in the market at large, the shares also were affected by more isolated events involving the company.
QCOM stock is trading within shouting difference of its 52-week high. And, the company is slated to detail its fourth-quarter performance after the market closes today.
Does this mean that potential investors should take a wait-and-see posture?
QCOM Stock at a Glance
Qualcomm is a semiconductor company based in sunny San Diego, California. It was founded in the city in 1985 and over the years moved into computer chips and software for use in communications.
Chips by the company are in widespread use. If you have a smartphone, there’s a good chance the device has a Qualcomm chip inside.
In 1991, the company conducted an initial public offering. The years following saw the company focus on industry-standard technologies. This role lead to growth, an international presence and years of high-stakes legal confrontations over patents and licensing terms.
The company is poised to benefit from the world’s conversion from 4G to 5G communication.
Qualcomm’s market cap is about $139 billion and its shares have a price-earnings ratio of about $52.
October was a good month for QCOM stock. Shares peaked for the year at $132.42. The milestone is a sharp contrast with the stock’s 52-week low of $58.
The high point came on the heels of a favorable court ruling in the company’s dispute with the Federal Trade Commission.
What Was That About?
In 2017, not long after folks celebrated the new year, U.S. trade regulators began an investigation into royalties Qualcomm charged.
Specifically, the FTC said the license fees were for patents the agency judged to be “essential to industry standards.” Moreover, the FTC said those charges were excessive and terms set by the company to access its chips violated antitrust protections.
This was not a little tiff over a minor issue. The company’s fees for using its patents represent a major income source. And as I said earlier, this kind of argument is familiar territory for Qualcomm lawyers.
A trial was held in 2019 and Qualcomm lost. The company appealed and last August a three-judge panel overturned the verdict.
In September, the FTC requested the entire Ninth Circuit Court of Appeals take up the issue with the hope that the entire panel might disagree with the trip and side with the government. But that request was denied last month.
Not surprisingly, this decision ignited QCOM stock. Qualcomm’s licensing fees form a large part of the company’s financial foundation. And its practice of tying the payment of patent fees to whether a customer can acquire its chips – which the trial court said was illegal – narrowly withstood a severe judicial test.
The appeals court described the company’s actions as “hypercompetitive” as opposed to improperly stifling competition.
As a result of the successful appeal, Qualcomm will continue enjoy a financial setup that goes beyond lucrative.
Qualcomm’s litigation with U.S. regulators was par for the course for the company, as the company also during this time engaged in a pitched legal battle with Apple (NASDAQ:AAPL).
This dispute ended with a six-year agreement between the two companies.
The Bottom Line on Qualcomm
Now that these key court cases are in the rear-view mirror, Qualcomm can more easily focus on the point of all this: its products and services. The company has momentum going into the implementation of 5G technology, which is in its early stages.
The settlement of important legal issues also will allow investors to focus on Qualcomm’s path forward and whether QCOM stock should be in their portfolios.
Buying QCOM stock is an appealing move, even at this price, but it depends on your portfolio.
Although the stock is priced high, Qualcomm has room to grow. Nevertheless, its shares are volatile ahead of the earnings report. It may be prudent to hold off and see if they dip lower.
On the date of publication, Larry Sullivan held a long position in AAPL.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.