Qualcomm's Value Getting Better but NXP Semiconductor’s is Questionable

Though I previously contend that Qualcomm (NASDAQ: QCOM) has a fair value of around $50, management finally did something right last week. The company announced a massive $10 billion share buyback. That move improved the value in QCOM stock.

Qualcomm’s danger of falling sub-$50 is now less likely.

QCOM stock is a compelling value play not only because of its 16x forward P/E multiples but because the stock pays a dividend yielding 4.5%. The refusal from Apple (NASDAQ: AAPL) to pay the full royalties owed, as previously negotiated, is a headwind. QCOM listed three concessions in hopes of ending the legal fight with Apple. First, it will offer a 3.25% "standard essential patents." Previously, the fee was 5%. Second, it will include 5G patents for no extra costs. Third, Qualcomm will go after patent fees on the first $400 of the phone, instead of $500.

Apple needs a settlement: the Intel (NASDAQ: INTC) chips are inferior to that of Qualcomm’s. Having Qualcomm parts back in the iPhones will restore the quality and performance. iPhone users did not get any discount or savings when Apple switched to Intel. Any settlement will likely lead to no changes in iPhone pricing.

NXPI Tender Extended

Qualcomm pushed out the expiry of the NXPI (NASDAQ: NXPI) tender but only 13.1% of O/S shares have been tendered, worse than the 16.2%. Unless China approves the deal, tendering to the deal makes no sense. MOFCOM hasn’t signed off on the deal yet. For now, NXP stock’s value is unknown. The $127.50-per-share buyout is unlikely until China softens its stance. If the deal falls apart, NXP still wins, getting a $2-billion breakup fee.