Qualcomm (QCOM)

[Not Added] Up until this morning Qualcomm remained a very strong growth candidate for 2017. Qualcomm has seen a struggle to maintain contracts with Apple and Samsung for main processing chips, but analysts remained bullish based on QCOM’s overwhelming number of patents around CDMA and LTE chip technology – Qualcomm receives royalties from essentially all cellular devices using 3G and 4G standards.

With the anticipated continued growth of the cellular market analysts put QCOM’s growth for next year between 17 and 25%. The contrarians believed that ongoing litigation in China and South Korea regarding the legitimacy of Qualcomm’s patents might prove to damage their prospects, and this morning Qualcomm announced this:

Cos announced that, based on equal and fair negotiation, they have reached a patent license agreement whereby Qualcomm grants Meizu a worldwide royalty-bearing patent license to develop, manufacture and sell CDMA2000, WCDMA and 4G LTE complete devices.  The royalties payable by Meizu in China are consistent with the terms of the rectification plan submitted by Qualcomm to China’s National Development and Reform Commission. This agreement resolves all of the patent disputes between Qualcomm and Meizu in China, Germany, France, and the United States. Qualcomm and Meizu have agreed to take appropriate steps to terminate or withdraw the patent infringement litigations and respective invalidity proceedings or other related litigations.

Surrendering their royalty bearing patents could prove disastrous and since this was the basis of much of their growth for next year, we cannot add QCOM to our portfolio.

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