Over the next week 24/7 Wall St. will set mid-year price targets (June, 30, 2007) for the sixty most widely traded stocks. These targets will be based on past price performance, industry activity, forward projections of financial performance, outside analyst opinions, and research conducted for doing past articles on these firms. The price targets assume flat markets over the next six months. In other words, if the Nasdaq moved up 25% between now and mid-year, the target share price targets would probably be too low. If the market moved down by 20%, they would probably be too high
Qualcomm. (QCOM) If you look up the phrase "what can go wrong, will go wrong" in a reference book, Qualcomm’s logo should be on the page. The company owned the wireless chip and handset IP licensing market and it drove the stock from under $13 in July 2002 to over $53 in May 2006. The stock now trades at under $38.
The list of what went wrong goes on and on. The company is in a dispute with its largest customer, Nokia. The negotiations to renew the Qualcomm licensing deal are going nowhere. There is even mention of bringing in an arbitrator. The contract expires in three months. Qualcomm is also in a patent dispute with competitor Broadcom. The company’s potential monopoly position is being reviewed by the European Union and officials in Korea.
Qualcomm is doing a few things to help its case. It is building Bluetooth and WiFi capability into some of its chips. Morningstar likes the stock because: "while the company’s royalty agreements have come under increased scrutiny lately, we still believe the company stands to benefit from increased adoption of CDMA technology globally." But, JP Morgan and Oppenheimer have both recently downgraded the stock.
Over the last six months, there has been no insider buying in the stock against 19 insider sales. Not exactly a ringing endoresement.
After tremendous net income growth from 2002 to 2005 (fiscal year ends September), growth slowed considerably in the 2006 fiscal year. The company has said that its operating income could be further squeezed by legal costs related to its disputes with Broadcom and antitrust investigations.
Factors that could move the stock above target: If Qualcomm could mend its fence with Nokia on reasonable licensing terms, it would do the company a world of good.
Factors that could move the stock below forecast: If the EU or Korea really decide to go after Qualcomm on antitrust issues. If the courts decide that Broadcom should get a piece of Qualcomm’s licensing action due to patent infringement.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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