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Shares of cell phone chip vendor Qualcomm (NASDAQ:QCOM) were trading down in after hours, albeit only slightly, following an announcement Monday that President Bush will not veto a ban by the International Trade Commission that blocks new “3G” cell phones containing Qualcomm chips from entering the U.S.

The ban was the result of a patent lawsuit won by Qualcomm competitor Broadcom (NASDAQ:BRCM) back in May. Monday was the deadline for Bush to help out Qualcomm by blocking the ban.

The news that Bush won’t get Qualcomm off the hook “was not a surprise” to investors, says American Technology Analyst Mark McKechnie, who covers Qualcomm. He says investors had held out little hope that Bush would, in fact, step in. McKechnie, who has a $60 price target on the stock, or about 43% upside from Monday’s close of $41.78, says that it may not be that big a deal for Qualcomm, either.

He says the risk to Qualcomm earnings has been cut in half since Verizon Communications (NYSE:VZ) on July 19 struck a patent agreement with Broadcom, allowing Verizon to continue to sell new Qualcomm phones. As a result, only about 5% of Qualcomm’s December-quarter revenues are at risk versus a prior estimate of 10% risk (you’ll recall that on July 25, Qualcomm actually raised its sales and profit forecast, as Eric has noted).

The bigger picture is that “Qualcomm’s doing really well in the rest of the world,” so the impact of some lost sales at AT&T (NYSE:T) and Deutsche Telekom’s (DT) Tmobile here in the U.S. is not as serious, says McKechnie. From here, Qualcomm has a few next steps at its disposal, and the outcome of those steps can affect the ultimate risk to Qualcomm. “When will the ITC actually be able to start to push phones back at the border,” asks McKechnie, “I’m trying to figure that out.”

One likely out is for Qualcomm and the carriers and phone makers to come up with some software workaround to patent issues. “Samsung says they have [a work-around], and my contacts at Motorola (MOT) suggest they have one.” Qualcomm can push for some kind of emergency stay on the ban. Or Tmobile and AT&T could work out the same deal with Broadcom that Verizon has. “The grandaddy would be if Qualcomm and Broadcom came to a worldwide patent agreement,” says McKechnie, but he lists that as the least likely scenario of those mentioned. In fact, Qualcomm said in a statement Monday it is pursuing a stay of the ITC ban and it is working on software fixes with its partners, no doubt a reference to the workaround McKechnie references.

Qualcomm shares are up nearly 11% this year. Shares of Broadcom were up a half a percent in after hours trading. They have risen 3.5% this year.

QCOM vs. BRCM 1-yr chart:
qcom brcm chart

Source: Qualcomm Prospering From Sales Outside U.S., Despite Bush Rebuff