Morgan Stanley Resumes Coverage on Qualcomm at Underweight

Morgan Stanley analyst Joseph Moore resumes coverage on Qualcomm (NASDAQ: QCOM) with an Underweight rating and a price target of $132.00.

“Qualcomm has executed well under challenging circumstances, but may have maximized earnings power for now, facing headwinds from weaker smartphones, share loss at Apple that has been well understood for some time, some share pressure within Android, and strong investment requirements for data center.

Valuation is not demanding, but we see the stock modestly underperforming the group unless the data center optionality emerges.

Some of the smartphone share pressures and demand issues are well understood – but it is likely to be a material headwind.

Pressures on Apple baseband share have been a factor for nearly a decade, and to management’s credit they have been very proactive about signalling that.

Share has oscillated within Samsung, and is set to decline this year after last year’s windfall 100% share of flagship down to a more typical 75%.

At this point in the 4G cycle, we have started to see further share loss in other parts of the Android ecosystem, which could become a factor going forward.

Royalties seem likely to be intact, but customers pushing back on royalties could be a factor as well. The handset market is also likely to remain quite weak based on the memory shortage.

Some of this was highlighted on the most recent call, where Qualcomm discussed some China Android customers pushing out shipments based on limited availability of memory.

We see this as an ongoing challenge for the market, and think that the company’s single digit decline in handset volumes may prove optimistic.”

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