Until Qualcomm Can Respond To Intel And Apple, Barclays Is Moving To The Sidelines

Barclays’ Christopher Hemmelgarn downgraded the rating for QUALCOMM, Inc. (NASDAQ: QCOM) from Overweight to Equal-weight, while reducing the price target from $55 to $50.

Although for months there has been speculation of Intel Corporation (NASDAQ: INTC) securing a portion of the IP7, the impact on Qualcomm is not clear as yet. Analyst Christopher Hemmelgarn added, “[W]e are moving to the sidelines until this transition and QCOM's response is better understood.”

Impact On Modem Business

Intel is widely expected to take some share at Apple Inc. (NASDAQ: AAPL) in 2016. Checks have not revealed the percent allocation that Intel will get. Hemmelgarn mentioned, however, that a 20 percent Intel share could adversely impact Qualcomm’s EPS by -$0.13.

Related Link: 95% Of Vetr Top Raters Like Qualcomm

“We clearly stayed with the OW on QCOM too long, but we always had the view that QCOM's modem business was a defensible franchise that should be able to outlast the smaller competitors. We clearly underestimated Intel's ability to lose billions of dollars in this pursuit of mobile, but we also thought QCOM would make a larger effort to monetize the modem business it still has,” the analyst wrote.

Although Qualcomm has made efforts to win back business with its 820 IC, Intel’s likely move would make the road ahead a lot tougher for Qualcomm. Hemmelgarn expressed concern regarding the company’s ability to generate “the right level of profitability” from the modem business. He added, “If QCOM can't fix that problem then this would be bad business for both companies unfortunately.”

The EPS estimate for FY1 and FY2 have been reduced from $4.13 to $4.00 and from $5.02 to $4.39, respectively.

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