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FTC's Anti-Trust Suit against Qualcomm Remains on Track

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Qualcomm Inc.’s (QCOM - Free Report) proposal, forwarded in Apr, 2017, to dismiss the anti-trust lawsuit filed against it by the U.S. Federal Trade Commission (FTC) was recently denied by the U.S. District Judge, Lucy Koh, of the Northern District of California in San Jose. The ruling judge stated that FTC’s antitrust lawsuit against the company can proceed.  

Following the news, the stock price of Qualcomm closed down 2.00% at $55.43, on Jun 27, 2017.

In Jan 2017, FTC filed a lawsuit in the U.S. District Court of the Northern District of California claiming that the company has resorted to anticompetitive measures to maintain monopoly in baseband chipset market. FTC highlighted Qualcomm's "no license, no chips" policy under which the company is said to have misused its position. Qualcomm allegedly refused to sell chips unless customers sign a patent license agreement and pay fees to the former.

According to the anti-trust lawsuit, Qualcomm has excluded competitors from getting a foothold in the baseband chipset market by using unfair means to secure business, thereby harming consumer choice. Notably, Intel Corp. (INTC - Free Report) and Media Tek are the company’s closest competitors in this filed. In addition to iOS, Qualcomm chipsets are vastly used for Alphabet Inc.’s (GOOGL - Free Report) Google developed Android software and Microsoft Corp.’s (MSFT - Free Report) Windows operating system.

Qualcomm generates approximately 29% of its total revenue from the licensing business, which accounts for almost 77% of the company’s net profit. Moreover, the company has a history of receiving allegations related to licensing disputes. Qualcomm has been facing regulatory proceedings of late and is being charged with fines for unfair business practices and licensing royalty payments. The company settled an over-payment licensing dispute with BlackBerry Limited by paying $940 million on May 31, 2017.

Meanwhile, the $1 billion lawsuit with tech giant Apple Inc. (AAPL - Free Report) over licensing royalty payments turned unpleasant. Per a recent Bloomberg report, Apple has accused Qualcomm of having an “illegal business model” that helps the company to earn more patent money and at the same time enables it to stifle innovation.

We look forward to see how the further proceedings of the two legal disputes – with FTC and Apple, will affect Qualcomm’s price performance in the coming days. In addition to the complaint from the FTC, Qualcomm has faced a series of antitrust rulings and investigations from regulators across the globe, including China and South Korea.

Aggressive competition in the mobile phone chipset market continues to hurt Qualcomm’s profits. We believe that such downturns have led to Qualcomm’s declining price movements. The company currently holds a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the last six months, Qualcomm’s share price has gone down 16.07%, lagging the Zacks categorized Wireless Equipment industry’s gain of 0.80%.

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