How Can The Brexit Impact Qualcomm?

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The news of the Brexit pulled down Qualcomm’s stock price by approximately 8%. However, it has pretty much recovered since then. We can largely attribute this drop to the general sell-off sentiment of the market rather than any actual impact of Brexit on the company’s revenues. (For more details read our previous article: Why Brexit Will Not Have A Significant Impact On The Semiconductor Industry) However, we cannot completely ignore the fact that with the Brexit, Qualcomm might not be able to fully reap the benefits of a European Single Digital Market in future. Below we list down the points as to why a European Single Digital Market is beneficial for Qualcomm:

  • The commission recognizes the importance of safeguarding standard essential patents, which is essential for monetizing the investment in research and innovation. This directly benefits Qualcomm, given that around 70% of its profitability is dependent upon technology licensing and collecting royalties.
  • Furthermore, OEMs will be more accountable to Qualcomm for using its technology. Qualcomm’s profitability has been affected in the past, when its customers have under-reported sales by ignoring the licensing terms. Though this problem of under-reporting of sales is currently only limited to China, there is a risk that Qualcomm might face such issues globally in future.
  • The commission is also very ambitious about bringing in telecom reforms, which could directly spur smartphone growth. According to our model, a 10% growth in global mobile phones sold could have an upside of approximately 8% to our current price estimate for Qualcomm.

Impact of Brexit

It must be noted that UK is the largest mobile market in Europe with a value of £14 billion annually and 80 million mobile subscribers. However, the separation of EU would mean that Britain would not be able to influence the debate of the digital single market. Though a few Brexit supporters say that Britain could follow Norway’s example and participate in a digital single market without having to be in the EU, the possibility was ruled-out by one German official, though others are less strident.

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Conclusion

The vision of European Single Digital Market might be delayed due to the Brexit. Further, it would have been more beneficial for Qualcomm, if Britain was to be a part of such a commission. Otherwise, Qualcomm might not be able to enjoy the upside of such a framework.

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