Light Appears in the Qualcomm Legal Tunnel

Includes: AVGO, QCOM
by: Tiernan Ray

In the wake of Qualcomm’s (NASDAQ:QCOM) announcement Friday it settled some patent disputes with fellow wireless chip maker Broadcom (BRCM), some analysts are saying the clouds are lifting from the company’s cellular chip intellectual property business, where it’s been in legal spats with just about everyone.

That, coupled with things like television on a cell phone, could boost the stock.

  • The settlement shows that Qualcomm’s patent licensing and royalties are not in deep jeopardy, says Thomas Weisel Partners’s Hasan Imam in a note Friday: “We have held the view that even as the current volley of law suits and IPR battles increase QCOM’s risk profile, it is unlikely that QCOM will lose every battle on the legal front, or suffer a debilitating/severe blow to its
    business model as the “Bears” on the stock have presumed.”

    While keeping his Overweight rating on the stock, Imam says the shares will be “range bound” until the company is able to wrap up its differences with Nokia (NYSE:NOK) and some other litigants. This is a big positive compared to the view I cited on Wednesday from A.G. Edwards analyst David Wong, who implied Qualcomm’s business model might be going down the drain.

  • “It’s time to turn bullish on QCOM,” says First Global’s Mohentish M., raising the stock’s rating to Outperform from Market Perform. The company’s coup with Verizon Communications’s (NYSE:VZ) wireless unit and AT&T’s (NYSE:T) for its MediaFlo technology, which sends TV programs to a cell phone, along with a passel of patents on every emerging cellular technology, mean it’s all upside from here:

    Given the expectation of a good performance from MediaFLO based on the successful trials and considering the robust patent portfolio in HSDPA, HSUPA, OFDM/OFDMA technologies that are expected to help QCOM maintain its revenue flow from royalties in future, we upgrade the stock to Outperform.

  • And even though Qualcomm still has four other cases pending with Broadcom, this is probably the beginning of the end, says Prudential Equity Group’s Inder Singh: We believe that the current agreement could be a first step by the two companies towards a broader settlement […] Beyond the U.S., Broadcom is also one of the plaintiffs in the European Commission case against Qualcomm. We believe that a broader settlement between the two companies could also weaken some of the other multi-plaintiff lawsuits against Qualcomm where Broadcom is a party as well.” Singh has an Outperform rating on the stock and thinks it can hit $50.
  • Qualcomm shares closed up 1.33% Friday at $43.36, while Broadcom closed down a fraction of a percent at $36.40.

    QCOM vs. BRCM 1-yr chart

    qcom brcm chart