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Qualcomm's Legal Issues Not Likely To Interrupt NXP Takeover

NXPI, INTC, AAPL, QCOM | January 26, 2017

Oppenheimer said QUALCOMM, Inc. (NASDAQ: QCOM)’s legal issues won’t hurt its pending acquisition of NXP Semiconductors NV (NASDAQ: NXPI), which it had agreed to buy in October for $110.00 a share in cash, representing a total enterprise value of about $47 billion.

The earnings call of Qualcomm, which reported an in-line EPS, was focused heavily on its legal disputes with Apple Inc. (NASDAQ: AAPL), Korean FTC, EU, China and US FTC.

“We don't expect legal issues to impact the pending NXPI acquisition, and continue to expect the deal close by the end of CY17,” analyst Rick Schafer wrote in a note.

However the analyst noted that the legal issues suggest that structural headwinds continue for Qualcomm's technology licensing business (QTL), while its CDMA business (QCT) faces increased competition.

Positive On Deal

This is where diversification comes in handy. NXP, a maker of mixed-signal semiconductor electronics, is expected to boost Qualcomm’s footprint in automotive, Internet of Things, security and networking areas.

“We see the acquisition as 25+ percent accretive in CY18, assuming 50 percent of the $500 million synergy target,” Schafer highlighted.

Despite being positive on the NXP deal, the analyst maintained his Perform rating on Qualcomm shares, citing headwinds in both QCT and QTL segments.

Schafer pointed that first quarter MSM of 217 million was in line with consensus, but down 10 percent year-over-year due, in part, to losing share to Intel Corporation (NASDAQ: INTC) in Apple's iPhone 7. Also, the MSM guidance of 175 million is a 7 percent year-over-year drop.

Meanwhile, the analyst slashed his CY 2017 non-GAAP EPS estimate to $4.55 from $4.78 on higher tax rate and costs.

At last check, shares of Qualcomm were down 5.52 percent to $53.76.

Image Credit: By Ryo FUKAsawa (https://www.flickr.com/photos/fukapon/21879687510) [CC BY 2.0], via Wikimedia Commons