- "Admittedly, we should have made this change when issues with China surfaced a year ago," says Nomura's Romit Shah, downgrading Qualcomm (QCOM -0.8%) to Neutral and cutting his target by $15 to $60. "[W]hile handset OEMs have long been dissatisfied with terms, every patent-related dispute spanning Europe, Korea, Japan and India resolved in favor of Qualcomm. We expected a similar outcome after Qualcomm settled with China’s NDRC in February. China though has proven to be a different animal."
- Citing Qualcomm's FQ4 earnings call remarks, Shah observes the company has seen slower-than-expected progress inking Chinese 4G licensing deals, that existing licensees are withholding/under-reporting payments as new contracts are being negotiated, and that share gains by Chinese OEMs that are often undercutting non-Chinese rivals are impacting royalty revenue.
- Qualcomm also stated on its call it's "actively preparing to enforce our agreements and/or take other actions against OEMs that are not negotiating in good faith, under-reporting royalties, or refusing to conclude agreements within a reasonable period of time," and insisted it has "a number of tools at our disposable that can be deployed both within and outside of China that we believe will ultimately resolve this activity." The WSJ has reported Lenovo and Xiaomi haven't yet agreed to new deals.
- Qualcomm is down 12% since providing soft FQ1 EPS guidance (due to royalty pressures) to go with an FQ4 beat last Wednesday. Shares trade for 12.5x an FY16 (ends Sep. '16) EPS consensus of $4.20.
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Qualcomm's results/guidance, details