Qualcomm (QCOM) Down On Stiff Competition, Lawsuits & Fines

On Jun 20, Qualcomm Inc. (NASDAQ:QCOM) , the largest mobile chipset manufacturer using baseband technology, was downgraded to a Zacks Rank #5 (Strong Sell) from a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the last three months, Qualcomm’s share price has gone up 1.41%, lagging the Zacks categorized Wireless Equipment industry’s gain of 4.29%.

The company has been facing regulatory proceedings of late and is being charged with fines for unfair business practices and licensing royalty payments. Qualcomm settled a licensing dispute with BlackBerry Limited (NASDAQ:BBRY) by paying $940 million on May 31, 2017. The settlement includes an $815 million payment plus interest, attorneys’ fees and net of certain royalties due from BlackBerry for calendar 2016 and the first quarter of calendar 2017. This is in relation to the over-payment by BlackBerry to Qualcomm in royalty payments from 2010 to 2015 under the terms of a licensing deal. The company recently updated one of its lawsuits providing more evidence that Apple Inc. (NASDAQ:AAPL) is interfering with its existing arrangements with the contract manufacturing firms.

Aggressive competition in the mobile phone chipset market has also been hurting Qualcomm’s profits. The company faces severe competitive threats from its closest rival, Intel Corporation (NASDAQ:INTC), which has been redesigning its chipsets for the mobile computing market. It is to be seen whether this will dent Qualcomm’s sales in the upcoming quarters.

On the other hand, the company’s updated Snapdragon processors and applications, to help retain its leadership in the global wireless baseband chipset market, looks impressive. Patent license network deals, tie-up with AT&T Inc. (NYSE:T) and Ericsson (BS:ERICAs) for 5G network trials and the launch of China’s first end-to-end data call bode well for Qualcomm.

Qualcomm has moved closer toward its proposed acquisition of Netherlands-based mobile chipset giant, NXP Semiconductors, by receiving the Taiwan Fair Trade Commission’s regulatory approval for this pending deal. The deal is under a thorough investigation by the telecom regulatory body of the European Union, the European Commission (EC). The EC has a 90-working-days time limit, until Oct 17, 2017, to reach a decision. The EC will probe in depth whether the deal could lead to higher prices, exclusion of rival chipset suppliers and reduced innovation in the semiconductor industry.

The company has launched its Mesh Networking Platform, recently. Qualcomm has appealed to the U.S. telecom regulator, Federal Communications Commission (FCC) for Special Temporary Authority (STA) to conduct limited pattern testing of satellite antennas designed for use in the 12.2-12.7 GHz frequency range. The company estimates a span of nearly six months for conducting tests from Jul 1 to Dec 30, 2017.

Moreover, the company’s foray into areas like automotive, networking and mobile computing bode well for its growth prospects. We expect such strategic business moves to improve Qualcomm's chipset sales in the upcoming quarter.

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