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QUALCOMM, Inc. (QCOM) $975 Million Settlement Paves Way For An Impressive Rally: Alex Gauna

QUALCOMM, Inc. (NASDAQ:QCOM) ended its 14-month tussle in China over anti-competitive practices by agreeing to a $975 million penalty settlement with anti-monopoly regulators.  Despite incurring the hefty charge, Qualcomm’s business model in China remains intact although, a series of changes are in the pipeline with regards to its licensing practices. During an interview on CNBC, JMP Securities analyst Alex Gauna, reiterated that the settlement marks the end of one of the longest overhangs. That has been dragging the stock down, which should pave the way for an impressive rally above the current $85 share price target.


“It was the key uncertainty for QUALCOMM, Inc. (NASDAQ:QCOM) presently. [..]. I know the outlook is somewhat subdued because of some questions about their exposure on Samsung in the second part of the year. However, if you look at the growth trend over the past several years which really clears that Qualcomm is not just riding. But, it is enabling the 4G LTE upgrade cycle, and now it is going to be able to capitalize on that trend in China,” said Mr. Gauna.

A price target of $85 a share had already factored in a settlement of such magnitude according to Gauna, who maintains that Qualcomm could soar above the $85 mark going forward. The deal also makes it easier for the giant U.S chip maker to collect royalty fees from some Chinese companies that had not been reporting on the usage of its patents.

The terms of the settlement still require the company to revise the fees it charges for the use of its patented technologies. A big change in the royalty plan could have severely affected QUALCOMM, Inc. (NASDAQ:QCOM)’s earnings, considering China accounted for almost half of the $26.5 billion in revenue that was generated last year.

“[…] what we got today was some uncharacteristic clarity on that royalty structure. We are going to have 3.5% royalties for 4G alone. We will have 5% royalties for 3G/4G combination royalty. What the good news is for Qualcomm is that, it is above their corporate average. So I think from $85 we should definitely be thinking even higher,” said Mr. Gauna.

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