(Reuters) – Qualcomm Inc’s surprise settlement of a prolonged legal fight with Apple Inc paves the way for the chipmaker to resolve a similar dispute with China’s Huawei Technologies Co Ltd, ahead of the launch of 5G phones, several analysts said.
FILE PHOTO: A sign on the Qualcomm campus is seen in San Diego, California, U.S. November 6, 2017. REUTERS/Mike Blake
Shares of Qualcomm, which closed up 23 percent on Tuesday, rose another 10 percent in premarket trade on Wednesday after it signed a six-year patent license deal with Apple.
If Wednesday’s gains hold, Qualcomm would tack on more than $20 billion in market value since announcing the settlement.
The two companies had been at odds over patents and royalties over modems. While Qualcomm did not close the terms of the deal, analysts estimated that Apple withheld $5 billion, or about $2 per share, under its previous royalty payment agreement.
Qualcomm and Huawei are also fighting over the same issues.
Huawei stopped royalty payments in April 2017 and Qualcomm said in January it has signed an interim agreement with the Chinese company and is in talks for a final resolution.
“We now expect an imminent settlement with Huawei which has also been withholding royalty payments, which we estimate will add another $0.50-$0.75 of EPS,” Cowen and Company analysts said.
Three brokerages raised their ratings on Qualcomm’s stock and at least eight brokerages boosted their price targets. Fourteen out of 25 brokerages rated the stock “buy” or higher and the rest “hold”, according to Refinitiv data.
A settlement with Apple and Huawei will not only bring in more royalty payments and reduce legal costs, it will help Qualcomm to focus more in rolling out its 5G modems, several analysts said.
The Qualcomm settlement means Apple will rely on the chipmaker for most if not all of its 5G modems in iPhones starting in 2020, with Qualcomm likely the leading to only supplier for the next several years, Canaccord Genuity analysts said.
Intel Corp, which was supplying modem chips to Apple for its latest iPhones, said late on Tuesday that it was exiting the phone modem business.
Reporting by Akanksha Rana in Bengaluru; Editing by Bernard Orr