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From early May, Qualcomm (NASDAQ:QCOM) stock has been on a gradual slide, going from $90 to $76. Yet it’s important to keep in mind that — for the year so far — the performance has still been pretty good. The 2019 return: a hefty 38%.
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This is in stark contrast to the fast five years when Qualcomm stock was essentially dead money (the average return was a mere 3%) as many other old-line tech companies did much better, such as Microsoft (NASDAQ:MSFT) and Adobe (NASDAQ:ADBE).
Now the company certainly faces some notable headwinds. Of course, there is the wildcard of litigation. While the company got the benefit of a stay from an adverse opinion regarding a Federal Trade Commission ruling from the U.S. District court, there’s no guarantee that Qualcomm will ultimately prevail. There are also various legal actions and claims in other jurisdictions.
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Yet perhaps the biggest problem for QCOM stock is the U.S.-China trade war. Consider that about two-thirds of revenues for the company come from China.
Oh, and then there is the nagging issue with Huawei, which the U.S. has imposed severe restrictions on. Even though QCOM has found some workarounds, there has definitely been an adverse impact on sales. For example, during the latest quarter, the company reduced its full-year unit shipments of smartphones by 100 million to 1.7 billion to 1.8 billion. Much of this was due to the situation in China.
The Positives for QCOM Stock
Despite what’s happening in China, I still think there are some potential catalysts that should help drive QCOM stock. One is the settlement of the patent dispute with Apple (NASDAQ:AAPL). This not only has cleared up a major legal cloud — which could have been particularly damaging — but also will result in a substantial revenue stream from royalties.
Then there is 5G. In fact, this is likely to be game changer for QCOM stock. On the latest earnings call, CEO Steven Mollenkopf said: “For the first calendar quarter of 2020, we anticipate reaching the inflection point as our financial results begin to reflect the benefits of our substantial efforts over the years to bring 5G to the market worldwide.”
No doubt, the company has been pushing the boundaries of innovation. This actually helps explain why AAPL settled its legal dispute. The company realized that it really needs QCOM technology.
For example, one of the differentiators for the company is dynamic spectrum sharing, which allows carriers to seamlessly change 4G spectrum to 5G. This capability is likely to lead to more adoption.