While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Qualcomm (QCOM -0.82%) fell 2% today after Piper Jaffray downgraded the mobile chipset giant from overweight to neutral.
So what: Along with the downgrade, analyst Auguste Gus Richard lowered his price target on the stock to $67 per share (from $71), representing about 3% worth of downside to yesterday's close. The stock has been on a nice run in recent months, but Richard's recent channel checks with foundry contacts (revealing production slowdowns), coupled with intensifying low-end foreign competition, suggest that Qualcomm is facing some headwinds that Wall Street is overlooking.
Now what: Richard doesn't expect the trend toward emerging markets sales to slow anytime soon. "MediaTek, the low-end Chinese OEM supplier, announced unit cell phone chipset shipments that were up 49% Q/Q and guided units up roughly 20% Q/Q," Richard cautioned Qualcomm investors. "We believe these datapoints point to an accelerating mix shift to the low-end that we believe will impact QCOM's royalty stream. Our below-consensus FY14 estimates anticipate this shift." Given Qualcomm's still-dominant competitive position, fortress-like balance sheet, and 2% dividend yield, however, I'd wait for more evidence of that trend before selling too big of a stake.
