Qualcomm's share price, in a coma for the past two years because of a legal war with Apple over patent fees, has awoken in a big way following Tuesday's settlement agreement between the two tech firms.
Over Tuesday and Wednesday's trading days, Qualcomm's stock has soared 35 percent. The gains came as the companies ended all litigation and signed new patent license deal and chip supply agreements targeting 5G iPhones.
Qualcomm's shares ended trading Wednesday at $79.04, compared with $57.18 on Monday _ when a federal jury trial began over antitrust and breach of contract legal claims between the tech firms where billions were at stake.
The share price rise equates to a $27 billion increase in market value for Qualcomm, pushing its market capitalization to $95 billion.
"This settlement should ease investor fears that Qualcomm's (patent licensing) business model is threatened, as the company has now reached long-term deals with both Apple and Samsung, and we believe is making progress with Huawei," said Christopher Rolland, an analyst with Susquehanna Financial Group, in a research note.
Apple, which is larger than Qualcomm, saw its share price rise about 2 percent to $203.13 on news of the deal, which looks like it will pave the way for a 5G iPhone sometime in 2020.
"Qualcomm's strong research and development investments and leadership in 5G modems was a key factor in Apple reaching a settlement," said Mike Walkley, an analyst with Canaccord Genuity.
With opening statements in the trial underway, Qualcomm and Apple announced Tuesday that they reached a settlement. Apple signed a six-year, direct license to Qualcomm's patents with a two-year renewal option. The two companies also agreed to a chip supply deal. And Apple will make a one-time payment to Qualcomm _ presumably for back patent fees that it cut off more than two years ago. The exact amount was not disclosed.
Qualcomm did not provide financial details. But the company did say the patent license and chip supply deal is expected to add about $2 per share in earnings once chip shipments ramp up. That figure does not include the one-time payment by Apple.
The settlement keeps intact a key pillar of Qualcomm's patent licensing business model that Apple had attacked in court, said Walkley. Qualcomm will continue to collect patent royalties based on the device price, rather than on chips inside it.
"The licensing agreement is a device level agreement consistent with Qualcomm's long-term licensing model," he said.
Manabu Akizuki, an analyst with Nomura, said Apple was likely testing 5G cellular modem chips from other suppliers _ including possibly China's Huawei _ prior to reaching a settlement with Qualcomm.
"Considering the (product) development cycle, we think this settlement with Qualcomm may be just barely in time for Apple to use Qualcomm chips in its 2020 product releases," said Akizuki in a research report. "We think other suppliers' 5G modems probably failed to meet Apple's requirements."
After the settlement was announced, Intel said it was exiting the 5G cellular modem market for smartphones. It is currently the sole supplier of 4G cellular modems for newer model iPhones but was rumored to be behind Qualcomm in being able to deliver a 5G chip.
"Concerns had been mounting about Intel's readiness for the 5G iPhone in fall 2020 and we were concerned about Apple's ability to deliver a 5G phone next year with acceptable performance and power consumption," said Raymond James analyst Chris Caso in a research note. "For Apple, we view this as good news since it answers the question about whether there will be a 5G iPhone next year."
Caso said the settlement sets the stage for Qualcomm to deliver $7 per share in earnings power in fiscal 2021, as 5G hits its stride and worries over the sustainability of patent licensing die down.
"Apple is now committed to six years," said Caso. "Qualcomm signed a new agreement with Samsung last year, and they also settled with China's National Development and Reform Commission, covering domestic China. Huawei's dispute hasn't been settled, but in light of the Apple settlement and the fact that Huawei has been making interim payments, a Huawei settlement would seem imminent."
