Qualcomm Inc. is reportedly seeking to sway the Trump administration to lift restrictions imposed on the sale of advanced components to the Chinese telecom giant Huawei Technologies Co.
The move comes as Qualcomm (QCOM) is looking to sell chips to Huawei for the Chinese company to deploy in its 5G phones, according to a Wall Street Journal report. However, US chip makers need a license from the Commerce Department to ship many such components to Huawei after the federal government placed the company on an export blacklist and imposed other limits.
Qualcomm is telling US policy makers their export ban won’t stop Huawei from getting necessary components and just risks handing billions of dollars of Huawei sales to the US firm’s overseas competitors, according to a presentation seen by the Wall Street Journal. With those restrictions, the US has handed Qualcomm’s foreign competitors a market worth as much as $8 billion annually.
US officials have argued that imposing restrictions on Huawei is necessary because of significant national-security risks regarding links to the Chinese government. Last month the British government said it would exempt telecom companies from purchasing new equipment made by the company. Huawei denies it is a threat and says it operates independently of the Chinese government.
Qualcomm said Taiwan’s MediaTek Inc. and South Korea’s Samsung Electronics Co. would benefit.
“If Qualcomm is subject to export licensing, but its foreign competitors are not, US government policy will cause a rapid shift in 5G chipset market share in China and beyond,” the US chip maker said. That would hamper American research and leadership on 5G issues, it said, calling that “an unacceptable outcome for US interests.”
The campaign comes just as Qualcomm announced a $1.8 billion settlement agreement with Huawei which ended a long-running patent-rights dispute. The agreement includes a long-term, global multi-year patent license agreement granting back rights to certain of Huawei’s patents, covering sales beginning Jan. 1.
Shares in Qualcomm have recouped all of this year’s earlier losses and are now up 23% year-to-date. (See Qualcomm stock analysis on TipRanks)
Earlier this month, Bernstein analyst Stacy Rasgon raised the stock’s rating to Buy from Hold with a $135 price target up from $105, saying that the Huawei resolution is opening up a clearer case for investors who are looking for a “5G pure play”.
“We have certainly had our issues with this company, stock, and management team over the years,” Rasgon wrote in a note to investors. “Given a cleaner outlook around customer and regulatory disputes, potential further upside from possible Huawei chip sales, accelerating economics as Apple re-enters the model, and subsequent potential for multiple expansion we judge Qualcomm’s risk-reward to be more positive than it has been in a long time.”
The analyst says chipset margins could exceed 20% going into next year due to a ramp in Apple smartphones.
The rest of the Street is cautiously optimistic on the shares. The Moderate Buy analyst consensus is based on 13 Buys, 7 Holds and 1 Sell. In light of the recent rally, the $115.12 average price target implies a modest 6.4% upside potential.
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