Qualcomm: Not A Monopoly

Mar. 19, 2019 12:03 PM ETQUALCOMM Incorporated (QCOM)AAPL, INTC, SSNLF71 Comments

Summary

  • Japan FTC confirms that Qualcomm doesn't operate as a monopoly.
  • The FTC lawsuit is still awaiting the ruling by the judge despite clear evidence that the modem market remains highly competitive and not impacted by Qualcomm's licensing program.
  • The stock contains some risk due to waiting on the judge's ruling, but the reward of $7 EPS goals remain the likely outcome from an expected positive ruling.

As Qualcomm (NASDAQ:QCOM) has been sued and fined by just about every important phone manufacturer and regulatory body in the world, the common ending resolution is to determine that the wireless technology giant isn't actually a monopoly and to leave their licensing program virtually intact. The main outstanding regulatory issue is Apple (AAPL) and the Federal Trade Commission lawsuit, but Qualcomm still appears on the path to achieving targeted EPS goals backing up our bullish investment thesis with the stock around $55.

Qualcomm X50 modemImage Source: Qualcomm website

Even Japan Relented

After a decade-long appeal process, the Japan FTC concluded that Qualcomm wasn't actually a monopoly. On Friday, the JFTC canceled a cease-and-desist order entered into back in September 2009. At the time, the Japanese regulatory body found that the mobile chip giant infringed on the country's Anitmonopoly Act and prevented Japanese manufacturers from asserting their intellectual property rights and development on wireless technology such as CDMA.

The irony here is that Japanese technology companies have virtually disappeared from the market over the last decade. The main smartphone manufacturers are now based in the U.S., China and South Korea. Per IDC, these top five manufacturers took over 5 percentage points of market share in the last year to control nearly 70% of the global market in Q4.

Both China and South Korea fined Qualcomm for illegal practices in the last few years and left the license process in effect. China fined Qualcomm $975 million and South Korea $850 million that the company is still appealing. The end result is that the top smartphone company in the world is back to using Snapdragon chips for their upcoming 5G phone.

Back in early 2018, Samsung (OTC:SSNLF) agreed to an updated strategic relationship with Qualcomm based on a strong focus on 5G

This article was written by

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Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.


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Disclosure: I am/we are long QCOM, AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

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