Qualcomm Likely to Sell Smartphone Chips to Huawei Analyst Says

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Qualcomm could be the surprise winner in the U.S. government's latest crackdown on supplying critical technology infrastructure to the Chinese telecom equipment company Huawei Technologies.

KeyBanc Capital Markets analyst John Vinh makes that point in a research note Thursday as he raised his rating on Qualcomm shares (ticker: QCOM). The government recently issued new rules that will make it difficult for Huawei's chip manufacturing arm, HiSilicon, to get access to U.S. semiconductor manufacturing hardware.

Vinh argues that as a result, Huawei won't be able to use HiSilicon to source chipsets for its cutting-edge smartphones in 2021—and that the company will instead use Qualcomm's Snapdragon chipset in its flagship phones, the Mate 50 and P50.

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Qualcomm would need to apply for a license from the Commerce Department's Bureau of Industry and Security to sell those chips to Huawei. Vinh thinks the request would be granted, and that it would be accompanied by a patent license agreement between Qualcomm and Huawei. Qualcomm for months has been trying to secure a 5G technology license agreement with Huawei, but to no avail.

"Many of the restrictions put in place against Huawei are designed to protect national security threats posed by 5G communications/network infrastructure and military applications, whereas we don't believe consumer smartphone devices are being targeted," Vinh writes. He adds that an agreement would be consistent with U.S. interests, as it would benefit a U.S.-based chip company.

In anticipation of a deal with Huawei, Vinh raised his revenue estimate for the September 2021 fiscal year to $27.9 billion from $23.7 billion, and his earnings-per-share estimate to $6.64 a share from $4.85. Consensus estimates are $26.4 billion in revenue and profits of $5.78 a share.

The analyst adds that if the company fails to get an export license, "it would still benefit, as without chip supply and the ability to produce smartphones, we anticipate other Chinese [mobile phone companies], including Xiaomi and Oppo/Vivo, which are already Qualcomm customers and licensees, gaining share."

Vinh raised his rating on the communications chip company's shares to Overweight from Sector Weight, setting a price target of $105.

Qualcomm stock is up 0.9%, at $80.04, in recent trading. The S&P 500 is up 0.5%.

Write to Eric J. Savitz at eric.savitz@barrons.com

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