Qualcomm Drops After Analyst Meeting: What Wall Street's Saying

NEW YORK (TheStreet) -- With Qualcomm's (QCOM) stock off around 2.5% from Tuesday's close price, Wall Street isn't ready to look past the company's licensing issues in China, despite its Wednesday reveal that it plans to grow revenue between 8% and 10% each year through 2018.

Qualcomm executives including Chief Executive Steven Mollenkopf, (pictured) met with analysts Wednesday at the Grand Hyatt hotel in New York City and provided additional forward-looking guidance on its Qualcomm Chip Technologies (QCT) and Qualcomm Technology Licensing (QTL) businesses. 


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Though the company didn't provide financial estimates, it also further laid out its plan to capitalize on adjacent markets such as wearable technology, automotive and home automation industries. Qualcomm is repurposing its smartphone chips to hopefully grab a significant portion of what it refers to as the "Internet of Everything," a market it estimates will grow to 5 billion non-handset units by 2018.

Analysts appear to be buying into the long-term view of the company. In the short-term, however, they believe the stock will show little improvement until Qualcomm is able to resolve its conflicts in China where it's currently under investigation for violating antitrust laws and in dispute with Chinese device manufacturer. 

Wednesday, the company provided no update on timing for resolutions in China, leaving Wall Street still fixated on the matter. Perhaps a little too fixated, if you ask Qualcomm CFO George Davis.

Here's what analysts had to say about the meeting:

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Credit Suisse analyst Kulbinder Garcha (Outperform, $85 PT)

"At its annual analyst meeting, management had a confident tone on LT achieving double digit growth, but realistic on near term challenges in China. In the near term the stock will continue to be range bound. We believe the shift towards LTE globally remains a significant driver and we retain our OP."

"We believe QCT investments in carrier aggregation will pay off given the need for operators to utilize all available spectrum to maximize network performance ... we believe that QCT will achieve a 45% share in the wireless chip market LT."

Management believes that TAM long term in dollars can grow high single digits with 15% volume growth, offset somewhat by ASP [average selling price] pressure in low single digits. The moderation in ASP declines long term remains one area for debate after recent times. For China, management remains hopeful that one day they gain royalties. However, we believe visibility remains low. We do maintain the view that the company's strong IP position and existing agreements with -non-paying customers are strong levers eventually."

Canaccord analyst T. Michael Walkley (Buy, $90 PT)

"We attended Qualcomm's analyst day and were encouraged when management provided new five year growth guidance with revenue growth at an 8%-10% CAGR with faster EPS growth through operating leverage and capital returns. We remain impressed with Qualcomm's plans to broaden its technology leadership position in key technologies such as multi-mode LTE baseband chipsets, mobile CPU, connectivity, RF, and mobile GPUs while focusing R&D investments and slowing the rate of operating expense growth ... we believe the valuation is compelling for longer term investors. We reiterate our BUY rating and $90 price target."

"While the resolution of the NDRC investigation and ability for Qualcomm to remedy the licensing issues from Chinese smartphone OEMs remains a headwind for F2015 revenue and EPS growth, we believe Qualcomm management provided a compelling argument for overall leverage in the model longer-term, combined with new market growth opportunities to achieve its five-year plan."

Bank of America Merrill Lynch analyst Tal Liani (Neutral, $85 PT)

"We reiterate our Neutral rating, as management's messages confirm our expectations of growth deceleration and some pressure on margins."

"On the smartphone market, management discussed its expectations for growth deceleration of handset shipments for 2014-2018, offset by growth of non-handset units, keeping the overall unit growth at 15% per annum. We do not subscribe to this view and believe that Qualcomm will find it difficult to collect meaningful royalties on volume markets of non-handsets. In addition, we flag the expected decline in handset ASPs, with management looking for a drop from $212 to $192 next year, which is attributed to Chinese OEM share gains and a mix shift to emerging markets. On the semiconductors front, we commend Qualcomm for solid success in China with strength in the low-mid range units, which should put some pressure on MSM [multi station modems] ASP."

William Blair analyst Anil Doradla (Outperform, No PT)

"In a nutshell, while the analyst day did not provide any meaningful incremental color around China, thereby limiting reasons for owning the stock until the issues are resolved, we continue to be positive, largely based on two key reasons. While the first is related to the company's strong competitive position (especially with competitors exiting the business), the other is related to our belief that the stock has limited downside risk based on Qualcomm's valuation, strong balance sheet, cash flow generation, and management's willingness to initiate shareholder-friendly actions (75% of free cash flow distributed through dividends and buybacks). All things considered, these should stem some of the near-term concerns, and short of a catastrophic Chinese litigation outcome (which we do not expect), the stock should witness upside from current levels."

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--Written by Jennifer Van Grove in New York

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