Antitrust Authorities Crack Down on QCOM Stock
On Wednesday, QUALCOMM, Inc. (NASDAQ:QCOM) was fined $854.0 million by South Korea’s antitrust division, making it the biggest penalty in the country’s history. However, Qualcomm stock was unaffected.
QCOM stock barely moved in response to the fine, which is surprising, considering that the charges have plagued Qualcomm in recent months.
Regulators in Taiwan, Europe, and the United States are also investigating Qualcomm. They say the chipmaker used its monopoly over the smartphone market to squeeze extra royalties from clients. (Source: “US chip maker Qualcomm got hit with a $854 million fine from South Korea,” Reuters, December 28, 2016.)
China was the first to slam Qualcomm with these charges, which was unexpected. Beijing isn’t exactly gung-ho for antitrust litigation, nor is South Korea for that matter.
In February 2015, Chinese authorities settled their probe into Qualcomm with a $975.0 million fine. Now that South Korea has followed suit, investors are growing concerned about Qualcomm’s cash flow. It is not unprecedented for companies to be buried under lawsuits. We saw it happen to financial stocks during the aftermath of the 2008 financial crisis.
Those financial stocks were deflated once investors became afraid of finding more skeletons in their closets, which could also happen to QCOM stock. The European Union’s (EU) antitrust division is one of the most aggressive in the world, far more than the regulators in China and South Korea. So, if the European Commission (EC) follows a similar line of reasoning, the fines could start adding up.
The first two penalties have already cost the chipmaker nearly $2.0 billion. Who knows how much further litigation could cost? I find it difficult to believe that markets will ignore these fines forever, which means that a correction in QCOM stock may be coming soon.
After all, the company is still digesting its acquisition of NXP Semiconductors NV (NASDAQ:NXPI). Qualcomm is spending $47.0 billion in cash to complete this gargantuan purchase, so any unexpected hits to its cash flow could seriously complicate matters. (Source: “Qualcomm to Acquire NXP,” QUALCOMM, Inc., October 27, 2016.)
All it takes is for creditors to start charging a little more interest, or for them to tighten the repayment schedule. These types of acquisitions are as delicate as a house of cards. One small misstep can send the whole thing crashing down.
As such, investors are steering clear of QCOM stock in the short term. Once the dust has settled, they will reevaluate their positions but, for now, prudent investors feel that it would be wise to sit on the sidelines.