Investor Sahm Adrangi believes a significant decrease in Qualcomm’s stock of at least 50 percent is inevitable due to severe legal issues faced by the chip giant.
According to a research paper published by Kerrisdale Capital, Qualcomm’s stocks may be jeopardized by the chip giant’s involvement in major lawsuits, particularly in the United States.
The Kerrisdale report alleges that there may be a “period of immense confusion and uncertainty about Qualcomm’s prospects” that “could realistically cut Qualcomm’s licensing revenue, earnings power, and stock price in half.”
The United States Federal Trade Commission recently filed a case with the United States District Court for the Northern District of California against Qualcomm, alleging that the company has utilized anticompetitive methods to monopolize “the supply of a key semiconductor device used in cell phones and other consumer products.”
The impact of this case, according to Kerrisdale, could not only weaken the Qualcomm business model, prompting an overhaul, but also force the company to face the harsh punishments imposed by the law.
Judge Lucy Koh, who will be presiding over the Qualcomm case, has presided over several cases against Qualcomm in the past and is predictably leaning towards favoring the side of the Federal Trade Commission.
According to Adrangi, even though the California-based telecommunications giant has faced lawsuits in the past that resulted in significant financial losses, it was still able to dodge the impact and transact business as usual without disruption. However, the legal threats it faces at present are more severe and may be more difficult for the company to combat.
“In the past, Qualcomm has been able to keep its business model going, but this time the threats are far more severe,” said Adrangi.
Qualcomm’s current stock is valued at a little over $50, but Kerrisdale is predicting a drop by half in the coming years, supporting its claim that Qualcomm will have an extremely difficult time recovering from the impact of the lawsuit.
Qualcomm, founded in 1985 and headquartered in San Diego, California, is the leading supplier of baseband processors essential in managing cellular communications in smart devices and other mobile products. It also profits from patent licensing companies, which generate the biggest slice of the company’s revenue.
Qualcomm’s revenues in 2017 reportedly reached $22 billion, a figure which Adrangi predicts will drop over time if Qualcomm gets slapped by various lawsuits from different directions due to its business practices.
In the meantime, Kerrisdale will be on the lookout for more developments regarding Qualcomm’s fight to maintain its global leadership in the wireless telecommunications industry.
Adrangi is the Chief Investment Officer and founder of the investment management company Kerrisdale Capital, which publishes research on the stock market’s trends and developments.
Kerrisdale Capital, founded in 2009, is a hedge fund based in New York that currently manages $150 million in assets.
Business Insider featured the famed short seller in an interview back in 2013: https://www.businessinsider.com/meet-hedge-funder-sahm-adrangi-2013-10
