J.P. Morgan: China could spark Apple-Qualcomm settlement

Analyst Samik Chatterjee estimates that China’s iPhone injunction, if it went forward, could stop sales of 17 million iPhones.

From a note to clients that landed on my desktop Tuesday:

While the injunction in China could drive as much as a ~$0.50 cent headwind to our EPS forecast if continued for a full year, we believe the most likely outcome of the ruling and pending litigations are to drive a faster than earlier expected settlement between Apple and Qualcomm relative to ongoing litigation centered around compensation for Qualcomm’s IP portfolio, which Apple has already conservatively provisioned for since the time it stopped payments to Qualcomm…

Although our base case is for a resolution, we estimate the injunction will drive an annualized ~$0.50 EPS headwind. We estimate China accounts for roughly ~20% of global iPhone shipments of which models included in the injunction likely account for ~40% of iPhone sales (based on global average). This implies a stop-sale on about 17 mn iPhone shipments or $11 bn on revenue (assuming an average ASP of $600). We estimate this would on a stand-alone basis translate to a ~$0.50 cent headwind to our base case earnings forecast. However, we should highlight that stop-sale on older phones will be partly offset by substitution of newer phones.

Maintains Overweight rating and $266 price target.

My take: Tempest in a teapot.

See also: Wells Fargo: Apple ‘largely unaffected’ by today’s Qualcomm ruling

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