QUALCOMM SETTLES WITH APPLE. “The success of Qualcomm’s strategy..has pushed up the company’s stock 38% since Monday’s close to $79.08..” By Todd Horwitz, Bubba Trading

 

Qualcomm on a Roll

Through more than two years of takeover threats and legal strife, Qualcomm Inc. trained its focus on the future promises of 5G. That fixation is paying off so far. The chip maker’s lead in fifth-generation wireless technology persuaded the Trump administration last year to block a hostile bid by Broadcom Inc. out of national-security concerns. It helped muscle Apple Inc. to the table to settle a patent-royalty dispute on Tuesday and it contributed to Intel Corp.’s decision to discontinue developing rival 5G modem chips for smartphones.

The success of Qualcomm’s strategy—accelerate spending on 5G while staring down existential threats—has pushed up the company’s stock 38% since Monday’s close to $79.08, hitting highs not seen since 2014. Echoing complaints from the U.S. Federal Trade Commission, Apple had alleged that Qualcomm used its patent licensing business to keep a monopoly on modem chips that connect devices like the iPhone to wireless data networks. Qualcomm insisted that Apple was using its valuable technology with proper payment, and Apple later dropped Qualcomm’s chips in favor of those from Intel.

“They positioned their company to execute on this specific opportunity,” said Charles Lemonides, portfolio manager of ValueWorks LLC, which has roughly 5% of its holdings in Qualcomm. “It’s not like they hedged their bets,” he added. “They were all about this technology roadmap.” While the Apple deal removes a significant overhang, it doesn’t clear away all of Qualcomm’s challenges.

Qualcomm moves from fending for its life to needing to fulfill sizable new chip supply for a demanding tech giant. The 5G chip Qualcomm released in 2019 was designed to work alongside its own processor with 4G LTE functionality. For Apple, it will need to deliver a stand-alone modem chip with 5G capabilities that can work with the iPhone’s custom processors.

Jeff Helfrich, a portfolio manager at Dallas-based Penn Davis McFarland Inc., said the Apple deal returned Qualcomm to a status quo of dominance in the mobile-chip industry, but it didn’t solve the problem of a cooling global smartphone market or erase the challenge of diversifying into new business areas.

“The wireless market has been their go-to market for years,” he said. “They tried to branch out into displays and other markets, and none of it really stuck. They have a great business and great franchise, but the question is, ‘What’s next?’ ”

Todd “Bubba” Horwitz

IN ASSOCIATION WITH

Financial Markets and Political Commentary
 

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Todd Horwitz - Author of “Average Joe Options“. Todd began his trading career in 1980 at the CBOE. He was one of the original traders in the OEX & helped start the SPX. He is a member the CME where he trades S&P futures as well as foreign currencies & is a regular contributor to CNBC, Bloomberg, BNN, Fox & many other major news networks.