Bullish options flow was detected in QCOM stock on July 30, 2020, after a flurry of analyst upgrades on a global patent license agreement with Huawei.
On July 29, 2020, bullish options flow was detected in Qualcomm with 21,428 calls trading, 3x expected, and implied vol increasing over 2 points to 45.92%. Sep-20 95 calls and 7/31 weekly 95 calls were the most active options.
Huawei has shipped more smartphones worldwide than any other vendor for the first time in Q2 2020, according to a report from analyst firm Canalys. It marks the first quarter in nine years that a company other than Samsung (SSNLF) or Apple (AAPL) has led the market.
Huawei shipped 55.8M devices, down 5% year on year. But second-placed Samsung shipped 53.7M smartphones, a 30% fall against Q2 2019. Huawei is still subject to US government restrictions, which have stifled its business outside of mainland China. Its overseas shipments fell 27% in Q2. But it has grown to dominate its domestic market, boosting its Chinese shipments by 8% in Q2, and it now sells over 70% of its smartphones in mainland China.
China has emerged strongest from the coronavirus pandemic, with factories reopened, economic development continuing and tight controls on new outbreaks.
“This is a remarkable result that few people would have predicted a year ago,” said Canalys Senior Analyst Ben Stanton. “If it wasn’t for COVID-19, it wouldn’t have happened. Huawei has taken full advantage of the Chinese economic recovery to reignite its smartphone business. Samsung has a very small presence in China, with less than 1% market share, and has seen its core markets, such as Brazil, India, the United States and Europe, ravaged by outbreaks and subsequent lockdowns.”
Huawei suppliers include Micron Technology (MU) and Western Digital (WDC), while makers of optical components, including Acacia Communications (ACIA), NeoPhotonics (NPTN), Lumentum (LITE), and Finisar (IIVI), have previously reacted negatively to headlines regarding U.S. enforcement actions and allegations against China’s Huawei.
On July 29, 2020, Qualcomm said that it sees Q4 EPS of $1.05-$1.25, the consensus estimate was $1.10. The company sees Q4 non-GAAP revenue of $5.5B-$6.3B, the consensus estimate was $5.78B. The company sees Q4 MSM chip shipments of 145M-165M. The company said: “Our guidance for the fourth quarter of fiscal 2020 includes an impact of greater than (25c) to EPS attributable to a planning assumption of an approximate 15% year-over-year reduction in handset shipments due to COVID-19, including a partial impact from the delay of a global 5G flagship phone launch. However, the actual impact may differ materially due to the challenging economic environment and highly uncertain effects of COVID-19.”
Qualcomm (QCOM) announced on Wednesday that they entered into a settlement agreement, as well as a new long-term, global patent license agreement with Huawei, including a cross license granting back rights to certain of Huawei’s patents, covering sales beginning January 1, 2020.
On July 29, 2020, Qualcomm announced that they entered into a settlement agreement, as well as a new long-term, global patent license agreement with Huawei, including a cross license granting back rights to certain of Huawei’s patents, covering sales beginning January 1, 2020. “While we continue to assess the accounting impacts of the agreements, our financial guidance for the fourth quarter of fiscal 2020 includes the following: Estimated QTL revenues for royalties due on sales made by Huawei in the September 2020 quarter; Estimated revenues of approximately $1.8 billion related to amounts due from Huawei under the settlement agreement (which are incremental to amounts previously paid under two interim agreements) and estimated amounts due for the March 2020 and June 2020 quarters under the new global patent license agreement. This amount will be excluded from our Non-GAAP results.” Steve Mollenkopf, CEO of Qualcomm said: “As 5G continues to roll out, we are realizing the benefits of the investments we have made in building the most extensive licensing program in mobile and are turning the technical challenges of 5G into leadership opportunities and commercial wins. We delivered earnings above the high end of our range, continued to execute in our product and licensing businesses and entered into a new long-term patent license agreement with Huawei, all of which position us well for the balance of 2020 and beyond.”
Wells Fargo analyst Gary Mobley raised the firm’s price target on Qualcomm to $90 from $70 following quarterly results, while keeping an Underweight rating on the shares. The analyst notes that the Huawei license agreement stood out the most, with $1.8B in back royalties coming due and what he believes to be an incremental $250M/quarter in new royalties.
Susquehanna analyst Christopher Rolland raised the firm’s price target on Qualcomm to $125 from $110 and keeps a Positive rating on the shares. The analyst views its settlement with Huawei as the big catalyst of the quarterly results including its royalty settlement which could be $200-$250M per quarter in ongoing royalties.
Canaccord analyst T. Michael Walkley raised the firm’s price target on Qualcomm to $137 from $115 and keeps a Buy rating on the shares. The analyst said smartphones are recovering and expected to improve in the second half and the company remains well positioned to capitalize. He also noted its 5G share gains and its settlement with Huawei and the stock’s compelling share price.
JPMorgan analyst Samik Chatterjee raised the firm’s price target on Qualcomm to $120 from $108 and keeps an Overweight rating on the shares following the company’s results. Qualcomm’s leadership in 5G technology in conjunction with the upcoming ramp in 5G smartphones is pivotal to the agreement signed with Huawei, Chatterjee tells investors in a research note. Reaching an agreement with Huawei against the backdrop of heightened tensions between U.S. and China is going to lead to expectations for a bull case around potential Qualcomm 5G shipments to Huawei in the future to support its smartphone launches, says the analyst.
Raymond James analyst Chris Caso raised the firm’s price target on Qualcomm to $120 from $110 and keeps a Strong Buy rating on the shares. Caso says the settlement of the license dispute with Huawei should add $900M-$1B annual QTL revenue and about 70c in annual earnings. The analyst believes QTL revenue is now secure for a long time regardless of the outcome of the FTC case that is now under appeal.
KeyBanc analyst John Vinh raised the firm’s price target on Qualcomm to $125 from $110 and keeps an Overweight rating on the shares. The analyst notes that the company announced it has reached a resolution with Huawei and has signed a long-term global patent license agreement. He believes this likely paves the way for a QCT agreement as management noted it is figuring out how to sell to Huawei, suggesting Qualcomm is awaiting an export license.
Morgan Stanley analyst Joseph Moore raised the firm’s price target on Qualcomm to $121 from $102 and keeps an Overweight rating on the shares after the company reported “material upside” in the June quarter and said it sees a slightly better market in the September quarter. In addition, the company’s settlement with its “last major non payer,” Huawei, should add over 10% to EPS, said Moore.
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