Apple vs Qualcomm: We’ve Got No Winner Here

By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

On Dec 10, it became known that the Intermediate People’s Court of Fuzhou acknowledged that Apple (NASDAQ: AAPL) violated two patents of Qualcomm (NASDAQ: QCOM), a chip manufacturer. The patents are regarding photo editing and managing apps with a touchscreen. The court’s decision was banning Apple from importing and selling iPhone 6S, 6S Plus, 7, 7 Plus, 8, 8 Plus, and iPhone X in China. This does not affect iPhones released in 2018, i.e. iPhone XS, XS Max, and XR, though. Curiously, the decision was taken on Nov 30, but the media covered it only on Dec 10.

Over the trading week between Dec 3 and Dec 7, the Apple stock fell from $180 to $168, while as soon as the information became available to the public, the stock went slightly up. although having lost around 2% in the pre-market. Thus, earning by selling this bad news proved impossible.

The stock, however, was unable to recover till $180, still falling now and being in the negative with the overall stock index drop. Did Qualcomm strike Apple so much that investors decided to abandon the stock?

If it were the case, however, and Apple lost so much each time there was legal action against the company, we would not witness a steady uptrend around the last ten years. This is even not the first time Qualcomm files an action against Apple; besides, previously, Apple had to face multiple trials against Samsung, also regarding the patent rights. Currently, Apple is busy patenting everything it can, so that next time it may be the first to file an action.

Meanwhile, despite the court’s decision coming into effect since early December, it is still de-facto ignored, with iPhones still being sold in Chinese stores.

Qualcomm sent some proof to the court and is now demanding the iPhones may be no longer sold, while Apple affirms the decision covered just the previous iOS versions, while iOS12 does not violate any Qualcomm patents. Apple even updated their phone’s firmware last week in order to resolve this issue, but the court did not acknowledge it as a solution. Apple is of course going to appeal the court’s decision now while updating the firmware was more like an attempt to buy some more time.

Qualcomm is sometimes considered as a mobile platform monopolist, and this is confirmed with some anti-monopoly authorities’ decisions in the EU, Taiwan, and South Korea. Qualcomm competition was not at all fair, as the company offered Apple good discounts in exchange for the tech giant’s not purchasing chips from other manufacturers.

In Jan 2017, however, Apple filed an action against Qualcomm worth $1B in the US, as the latter did not return them the cash for those discounts.

Now, it looks like Qualcomm is attempting to take revenge. Besides filing an action in Fuzhou, the chip manufacturer also filed a complaint to the Munich court, which also took Qualcomm’s side on Dec 20. This lead to banning iPhone 7&8 from selling in Germany as well.

However, in order to drive the decision into effect, Qualcomm has to deposit EUR688M on escrow, while Apple still has the right to appeal. Qualcomm still has a potential to deteriorate Apple’s stats for the next few quarters. The Q4 report already confirmed that 1M less iPhones were sold than a quarter before, and this might be just the beginning. Once the report came out, the stock started making new lows, with the court decisions only adding to the negative side.

This looks a bit like the Facebook story, when  investors pushed the stock down just because the number of new users started going down, even while the earning reports were fine, with the 2015 data leakage scandal adding the fuel to the fire.

Qualcomm’s strike against Apple is very painful for the company. The tech giant might have just paid compensation, and this would have been the end. Now, it is becoming quite serious. If Apple is unable to demonstrate the higher than expected sales rise, which has been a common thing over the last time, this may mean the company’s fading out, and the investors will start trying to find a better option. For Qualcomm, on the other hand, this would not mean a 100% win. Over the last three years, the company’s earnings were going down. They had to pay high fines, and the investors are not very interested in buying their shares, with no uptrend emerging.

Their most important rival, Intel (NASDAQ: INTC), has meanwhile beaten them in terms of earnings.

Once Qualcomm stopped being able to demonstrate rising revenue, the stock started failing immediately. It reached its high at a bit above $80 in 2014 and has not been able to rise higher yet.

It is currently trading in a tight channel without majorly going up or down, allowing short term traders to capitalize on random choppy moves, with over 30% profit.

Meanwhile, Apple reached its technical top in September, trading at around $230. It tried to go even further in October, but failed, and then the price consolidated, pushed down to the nearest lows. The consolidation was most likely due to the investors expecting the Q4 report. Right before it came out, Apple formed a head and shoulders pattern, which might signal a reversal.

The neckline of the pattern got broken out right at the report, with bad earnings and negative court decisions pushing the price lower.

Where the absolute low lies, is still unknown. The 200-day SMA, however, may be a good reference option, as the price may well bounce off it. Still, with all major US indices going down, Apple price may sink lower, too, forming then a brand new support. This negative trend may only be stopped by a good earnings report with nice sales data.

When it rains, it pours. With the overall indices fall, bad sales, and negative court decisions, Apple is very much under pressure. Note that the moment when the market crowd stops buying and starts selling in panic is usually very unexpected. Those who still believe in the US tech giant should have patience and wait. The markets may calm down after the holidays, and the stock may again prove to be a good long term investment vehicle.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held Company for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Having majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.