Shares of the smartphone manufacturer have moved nearly 2% to the upside on Wednesday, building on a mild gain on Tuesday, suggesting there were really no losers in this settlement.
"We view the conclusion of AAPL and QCOM's legal dispute as a net positive for the stock," a team of Morgan Stanley analysts including Katy Huberty pointed out. "Big picture, today's settlement and multi-year chipset supply agreement means that Apple is better positioned for the upcoming push to 5G, which has become a pressing topic after reports in early April indicated Intel, the sole supplier of chips for the iPhone XR, XS and XS Max, has been "missing deadlines" for the development of their 5G chip."
The sped-up timeline allows for the company to compete with Samsung in the near term after the company rolled out its first 5G offerings just recently in South Korea.
While the agreement includes an undisclosed payment from Apple to Qualcomm, many analysts believe the one-time payment to be a pittance compared to the opportunity offered in keeping its 5G phone rollout on track.
"Apple will owe Qualcomm a yet-to-be-disclosed onetime sum, likely in the billions of dollars, but compared to Apple's $245 billion in gross cash and $50 billion plus annual FCF generation, we expect the settlement to have a relatively insignificant impact on Apple's balance sheet," the team noted. "Furthermore, Apple has been accruing royalty payments owed to Qualcomm since their dispute started, therefore unless the rate at which Apple has been accruing these expenses changed under the settlement terms (which is unknown at this time), there won't be an impact to Apple's operating expenses or margins."
Huberty noted that Apple has reportedly already been testing Qualcomm chips in preparation for a September 2020 5G launch that is now back on track.
"A 5G capable iPhone in 2020 is now a real possibility," she commented.
On that timeline, analysts see significant upside as smartphone demand could pick up on the basis of the new technology.
"[The announcement] does remove the overhang on Apple associated with a drawn out legal battle involving what had previously been one of the company's most important suppliers," Credit Suisse analyst Matthew Cabral said. "Further, the multi-year chipset supply agreement with Qualcomm helps de-risk the 5G roadmap for iPhone, in our view, which we expect will be added along with the portfolio refresh in [the second half of 2020]."
The agreement sets a six-year license agreement, effective as of April 1, 2019, including a two-year option to extend, and a multiyear chipset supply agreement.
The long-dated timeline not only removes the overhang in the short term, but insures the pipeline for the foreseeable future. That should ease the concerns of longer-term investors.
"I am long AAPL, and I have a $240 price target there," Stephen "Sarge" Guilfoyle said in his column on Wednesday. "The fact that this deal will ease Apple's transition from 4G mobile to 5G mobile is a positive for Apple, as is the removal of this legal risk. I am comfortable with that position. See you in two weeks for earnings."