BofA: Qualcomm Loss In FTC Case Could Invite More Trouble For Chipmaker

If QUALCOMM Inc. (NASDAQ: QCOM) is found guilty of anticompetitive business practices in an ongoing Federal Trade Commission trial, it could lead to more legal issues piling up for the chipmaker, according to Bank of America Merrill Lynch. 

The Analyst

BofA's Tal Liani reiterated a Neutral rating on Qualcomm with a $67 price objective. 

The Thesis 

Liani offered investors some takeaways from a discussion with patent law expert Jonathan Waldrop in a Thursday note and laid out some potential outcomes for Qualcomm as it fights the government's monopoly charges while also battling Apple Inc. (NASDAQ: AAPL) in separate litigation over similar issues.

While much of the legal news around San Diego-based Qualcomm has focused on its patent battle with Apple involving smartphone power-saving technology, the federal antitrust allegations could have more long-term ramifications for the company’s revenue, the analyst said.

The FTC accuses Qualcomm of violating antitrust law by imposing abusive patent licensing requirements for its wireless chip technology for smartphones; Qualcomm argues smartphone internet access wouldn’t be possible without its chips.

The government alleges the company is charging excessive licensing fees for companies that use the chips, like iPhone maker Apple. That, the government alleges, also harms consumers.

The trial is ongoing in federal court in San Jose, California and is scheduled to continue through the end of this month.

The FTC prefers to have companies change their anticompetitive behavior rather than issuing fines, and that raises the prospect of Qualcomm having to renegotiate about 300 licensing agreements, Liani said. 

The effect could be wider-reaching, he said. If Qualcomm loses, it could boost Apple’s separate court battles with Qualcomm, the analyst said. 

Such a decision would likely invite other antitrust investigations in other jurisdictions around the world, according to BofA. 

Earlier this week, Kerrisdale Capital said that if Qualcomm loses, it could cut the stock price in half.

Qualcomm shares were down 1.49 percent at $51 at the time of publication Thursday. 

Related Links:

Kerrisdale: Qualcomm Ruling Could Cut 'Stock Price In Half'

Morgan Stanley Breaks Down Qualcomm's Best Legal Strategy With Apple

Photo by Ryo Fukasawa/Wikimedia.