Shares of Qualcomm (QCOM) are under pressure after Kerrisdale Capital said it short the stock as the company's "imminent loss" in its ongoing trial against the Federal Trade Commission is "more serious" than the market thinks because it "accelerates the demise" of its patent licensing business.

SHORT QUALCOMM: In a newly published report, Kerrisdale Capital called Qualcomm a "semiconductor company teetering on the brink of disaster" and said it is short shares of the company. "The licensing business, despite contributing far less revenue than the chip business, has historically supplied roughly two-thirds of Qualcomm's profits, thanks to its extremely high-profit margins. This unusual business model is living on borrowed time. In the past few years, regulators across the globe have concluded that Qualcomm's ability to extract massive licensing fees from device makers like Apple [AAPL] and Samsung [SSNLF] stems not from the quality of its patents but from unlawful monopolistic tactics. In particular, authorities in China, Taiwan, Japan, South Korea, Europe, and the United States have found fault with what they see as Qualcomm's exploitation of its dominance in the market for premium modem chips [...] to force device-makers to pay outrageously high patent royalties, even on devices that don't contain Qualcomm chips, all while refusing to license its IP to potential competitors.

These core Qualcomm business practices, regulators contend, violate binding pledges the company has made to license critical patents on 'fair, reasonable, and non-discriminatory' terms, including to rivals like Intel [INTC]," the report reads. Kerrisdale Capital believes the FTC has brought "a powerful legal case against the company," with the trial currently underway, and thinks Qualcomm will lose. "Perhaps because prior legal troubles have 'merely' cost Qualcomm billions of dollars without fundamentally transforming its business model, the market has failed to appreciate the potentially dire consequences of the current trial. If the judge grants the FTC the remedies it seeks, forcing Qualcomm, among other things, to license core patents to competitors and to renegotiate all of its existing licenses on fair terms, it could realistically cut Qualcomm's licensing revenue, earnings power, and stock price in half," Kerrisdale argued.

PRICE ACTION: In morning trading, shares of Qualcomm have dropped over 3% to $52.51.