WASHINGTON. Big news in the tech sector gave the NASDAQ a nifty boost Wednesday morning, even as the Dow and the S&P 500 struggled to stay in the green. Even so, today’s tech buzz was hard to ignore. The longtime Apple vs Qualcomm grudge match has apparently concluded, as both tech giants prepare to battle 5G technology competitors rather than each other. A settlement in the AAPL vs. QCOM royalty suit was reached just as the companies’ long-awaited legal showdown was about to commence in court.
Apple vs Qualcomm is over. At least for now
Last minute deals like this one aren’t uncommon in the legal arena, as it’s often best to wrap things up before corporate quarrels (or even personal ones) become subject to the serendipitous outcomes often faced when judges or juries get to hear the case. In the Apple vs Qualcomm battle, Apple held back a substantial portion of the royalties claimed by Qualcomm for the use of its chips in Apple’s popular iPhones.
Apple essentially claimed Qualcomm’s royalty fees and patent claims were beyond the pale, and refused to pay the full freight until the latter company caved or renegotiated terms. To emphasize the point, Apple even switched to Intel to provide replacement chips for the QCOM product, cutting that company out entirely.
Without rehashing the details, the upshot of the Apple vs Qualcomm battle is this. Apple ponied up a substantial – but undisclosed – chunk of change, finally compensating Qualcomm for at least a portion of those long-withheld royalty payments. In turn, Qualcomm dropped its patent action against Apple.
Intel to suffer collateral damage
In addition, some collateral damage also occurred, as Apple once again appears ready to contract with Qualcomm to purchase its next-generation telecommunications chips, dropping Intel (INTC) communication chips in the process. As Intel’s chips haven’t been very well-regarded or gained much traction in the cellphone / handheld device universe, that company almost immediately followed up with an announcement that it was ceasing development of those chips and phasing out of that product line entirely.
Ironically, Intel shares jumped on the news of the Apple vs Qualcomm settlement. Unsurprisingly, so did Apple and Qualcomm, although the latter’s shares took Wednesday’s prize. QCOM was up over 12 points at the opening bell. It’s backed off a bit as we approach the noon hour, but remains up close to 7 points on the day thus far. The company’s shares currently stand at $77.27 per share, up nearly 7 percent as we write this.
A Qualcomm upgrade party on Wall Street
CNBC noted that Wall Street analysts immediately issued big upgrades for Qualcomm’s long-beleaguered shares.
“Analysts at Stifel, J.P. Morgan and Evercore ISI all upgraded Qualcomm on Tuesday’s news. Mizuho Securities, meanwhile, hiked its price target on Qualcomm to $82 per share from $62, implying a 16.3% upside from Tuesday’s close. Canaccord Genuity also raised its price target to $89 per share from $75 and reiterated its buy rating on the company.”
“… This removes a massive overhang from Qualcomm and clears the way for both companies to focus on 5G technology. However, some analysts say Qualcomm still faces headwinds, including a lawsuit from the Federal Trade Commission.”
Apple’s hand may have been forced due to Intel chipset issues and the banning of Huawei
Apple has long appeared to be in the driver’s seat on this issue. Other phone manufacturers have been none too happy either with Qualcomm’s rigid terms and high fees. On the other hand, as Intel has lagged well behind other potential chipset providers in the industry’s verging-on-hot 5G upgrade arena – some say its competing chip might still be at least a year off – Apple likely felt it couldn’t avoid getting stuck behind Samsung-produced, Android-centric devices in the race to adopt 5G.
With Huawei hardware essentially banned in US-sold handheld devices due to the very real fear that this Chinese firm is complicit in Chinese business and government espionage activities, that pretty much forces Apple to rely once again on Qualcomm’s cellphone technologies, including QCOM’s virtually good-to-go 5G chipsets. Apple will likely offer 5G phones in its upcoming 2020 phones, and apparently lacked confidence that Intel would get them to the finish line in time to compete.
Other market action
The big Apple vs Qualcomm news notwithstanding, market averages, minus the Dow, opened nicely up Wednesday morning. But they immediately reversed, currently heading back to flatline territory. Or even the red zone as the noon hour approaches.
The Dow has actually been a basket case for days. Investors keep whacking any number of its major components for anything. This include negatives like catastrophic product failure. Example: Boeing’s (BA’s) 737 MAX airliners. But they also include plain, old fashioned bad earnings. Earnings like IBM’s (IBM’s) poor quarterly numbers, reported just this morning.
As each oversized corporate giant in the Dow’s cap-weighted index gets clobbered, that creates outsized downward action in the Dow’s 30 Industrial average. Hence, the Dow’s poor recent performance when compared to the other major averages.
The much broader-based S&P 500 has done better over the same period, due to its cap-weighted but much larger 500 stock representation. Even so, it’s fractionally down as we write this, after having been in the green most of Wednesday morning.
The tech-heavy NASDAQ has just given up the green as we write this, the last of the three averages to hit the red zone. No doubt heavily weighted Apple, Qualcomm and Intel helped keep this average buoyant up to this point.
But a slight uptick in interest rates coupled with an unexpected drop in US oil inventories helped cut the knees out from under all three averages as the morning advanced, accounting for Wall Street’s currently modest negative mood.
Healthcare shares disappear into Wall Street’s black hole of fear
Sinking healthcare haven’t helped markets recently either. Today’s big Dow villain, healthcare is a case in point. Even historically impressive and recent great earnings numbers don’t help high-flying healthcare giant United Health one iota. Apparently, investors sell healthcare today just for the hell of it.
But we’ll have more to say about this in a companion column later today.
— Headline image: Apple iPhone: New 2018 model splash screen. Via Apple’s main website. Fair use.