The Federal Trade Commission ruling against Qualcomm (QCOM - Get Report) could cut the chipmaker's earnings per share in half, Mizuho analyst Vijay Rakesh said in a note Thursday.

The stock was falling 3.17% to $67.11 a share Thursday, down 15% since Tuesday's open.

A California judge ruled in favor of the FTC's case, saying Qualcomm's chip-licensing practices were anti-competitive. Several analysts said Wednesday they're now more cautious on the Qualcomm stock, as the ruling is a threat to sales. 

The "FTC ruling could potentially drive EPS down 50%+ in a worst case scenario," Rakesh wrote, moving his price target down 27.8% to $65 from $90. He also downgraded the stock to neutral from buy. 

As a result of the ruling, chip licensing, which represents 25% of Qualcomm's total revenue, could fall significantly, which would flow through to the bottom line.

"With Judge Koh asking for fair industry standard practice, if QCOM has to apply the 2%-3% royalty to just the "chip ASP" at $50-$70 (or even lower given industry standards at ~1% of chip ASP), we could see potential worst-case royalty revenue go to ~$1-$3 per phone, or ~80% downside to current QTL revenue and hence significant downside to EPS," Rakesh said. Currently, Qualcomm charges a 2% to 3% royalty rate on its chips, or $9 to $12 per handset.

Rakesh models 2020 EPS of $4.92, which could fall to $2.46 in his worst case scenario. Rakesh is moving to the sidelines, but not changing estimates. 

Plus, President Trump's ban on Huawei's (SHE) ability to do business with U.S. chip makers is weighing on Qualcomm shares. Goldman Sachs, which had suspended coverage on the stock for some time, resumed coverage this week, and said, "In the case of Huawei, we believe that a sustained restriction of US technology supply could significantly weigh on Huawei's handset share and accrue to Qualcomm via other suppliers (e.g., Apple and Samsung)." Goldman analyst Rod Hall re-initiated coverage with a neutral rating and a $73 price target. 

Hall on the FTC issue: "Although our analysis implies material upside to future earnings if a resolution to the existing Huawei royalty dispute were to occur, we are sidelined, given material trade and FTC overhangs could persist for some time."

Hall models 2020 EPS of $5.81, although "Huawei [resolution] could drive 27%-34% upside or $1.55-$1.99 to our CY20 EPS." Still, he is keeping his 2020 earnings multiple at 12.5, the mid point of its recent historical range of 10-15, "due to our concerns around the recent court ruling and the current trade dispute."

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