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Qualcomm : Kerrisdale says Qualcomm's stock could shrink by half

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01/23/2019 | 09:35am EST
A Qualcomm sign is seen during the China International Import Expo (CIIE), at the National Exhibition and Convention Center in Shanghai,

BOSTON (Reuters) - Activist investor Sahm Adrangi, who cemented his reputation with successful bets against Chinese internet companies, said that he has taken a short position against Qualcomm Inc, arguing the chip supplier's stock price could shrink by half.

Adrangi's hedge fund Kerrisdale Capital published a research paper that suggests Qualcomm's profits could be at risk as the company faces lawsuits, especially one in the United States.

If the company loses to the U.S. Federal Trade Commission, Kerrisdale said that Qualcomm would be forced to "license core patents to competitors and to renegotiate all of its existing licenses on fair terms."

That would create a "period of immense confusion and uncertainty about Qualcomm’s prospects - and ... could realistically cut Qualcomm's licensing revenue, earnings power, and stock price in half," the report says.

The Federal Trade Commission filed its case in the U.S. District Court for the Northern District of California and is alleging that Qualcomm's patent licensing and chip sale practices were anticompetitive and sought to preserve a monopoly on so-called premium LTE modem chips, which help mobile phones connect to wireless data network.

"In the past Qualcomm has been able to keep its business model going, but this time the threats are far more severe," Adrangi said. Previous legal troubles cost the company money.

A judgment against the company in this case could force an overhaul of its business model, the hedge fund argues. "As Qualcomm’s long-running game of monopoly draws to a close, there will be no 'Get Out of Jail Free' card," the report said.

Kerrisdale is arguing that Judge Lucy Koh, who is presiding over the case, has already ruled against the company on several matters and may be inclined to rule for the FTC.

Qualcomm's stock traded at $54.16 on Tuesday and Kerrisdale sees a chance for it to fall by half in the next year or two.

The company has a market capitalization of $66 billion and its stock is owned by mutual fund companies such as Vanguard and Fidelity.

Kerrisdale is a New York- based hedge fund managing roughly $150 million in assets. But it has taken on big targets before, including satellite communications company Globalstar. It has a large social media presence and boasts a 37 percent gain in 2018, far better than the average hedge fund which lost roughly 4.5 percent.

(Reporting by Svea Herbst-Bayliss; Editing by Susan Thomas)

By Svea Herbst-Bayliss

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Financials ($)
Sales 2019 20 676 M
EBIT 2019 4 790 M
Net income 2019 3 389 M
Debt 2019 9 841 M
Yield 2019 4,60%
P/E ratio 2019 19,74
P/E ratio 2020 15,95
EV / Sales 2019 3,66x
EV / Sales 2020 3,37x
Capitalization 65 808 M
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Technical analysis trends QUALCOMM
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Mean consensus OUTPERFORM
Number of Analysts 27
Average target price 67,3 $
Spread / Average Target 24%
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Managers
NameTitle
Steven M. Mollenkopf Chief Executive Officer & Director
Cristiano R. Amon President
Jeffrey William Henderson Non-Executive Chairman
George S. Davis Chief Financial Officer & Executive Vice President
Mary Gendron Chief Information Officer & Senior Vice President
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