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Investors at Qualcomm Inc. felt that some of the most significant legal issues had been resolved after the company's recent deal with Apple Inc., but a Federal Court decision has thrown the chip maker into uncertainty.
Judge Lucy Koh of the US District Court on Tuesday night sits on the side of the Federal Trade Commission, which has filed an antitrust lawsuit against the company in 2017. Koh has ruled that Qualcomm
QCOM, -10.86%
violated antitrust law by charging unreasonably high royalties for its patents, and that its licensing practices were "strangled competition" and ordered the company to renegotiate all of its agreements and license its patents to "Fair and reasonable prices" sign exclusive supply contracts with companies like Apple
AAPL, -2.05%
"We strongly disagree with the judge's findings, her interpretation of the facts and her application of the law," said Don Rosenberg, executive vice president and general counsel of Qualcomm, in a statement.
The decision and the immediate promise of Qualcomm to appeal the decision and request the suspension of the proceedings before the Ninth Circuit Court of Appeal failed to preserve Qualcomm's shares from a fall of more than 10 % Wednesday. Investors have been rightly worried because Wall Street analysts for the first time had no idea what would happen in the face of the latest threat to the company's licensing and royalty business, called Qualcomm Technology Licensing, or QTL.
"The remedies suggested in the decision may hurt QTL's profitability," said Chris Rolland, an analyst at Susquehanna Financial Group, in a note to clients, in a note titled "Just When You Think You're Missing …" bring back to the interior ". Rolland said that the exact changes in the cases requested by the judge were not clear, as well as what comes into effect immediately. He dropped his price target from $ 100 to $ 85. He also said that Apple could have the opportunity to renegotiate its long-term deal with Qualcomm, which, according to the company, could generate a business turnover of nearly $ 5 billion in the third quarter.
Uncertainty over Qualcomm's stock since the beginning of its major legal problems in early 2017 with the FTC case. Bernstein Research's Stacy Rasgon says the renegotiation of its license agreements will be "expensive". He said that even if investors should not have been surprised by the news, considering the judge's comments at the beginning of the proceedings, "some investors might have hoped that the judge could have softened his views following the recent capitulation of Apple. "
"Apparently not," wrote Rasgon in a note to customers.
The appeal process can potentially take several years. Therefore, until this case is resolved, another cloud hovers over the stock. Qualcomm investors are back as they were two months ago, before the start of the Apple lawsuit. Back in the sea of uncertainty, the actions of Qualcomm are not for sensitive souls.
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