Qualcomm rejects breakup plan
Qualcomm has rejected splitting its two main businesses - smartphone semiconductors and wireless patent licensing -- into separate companies, ending a five-month strategic review sparked by an activist investor.
The San Diego mobile giant said Tuesday that its board of directors believes the company is stronger together, with both of its division relying on each other for their success.
“The strategic benefits of the current structure will best fuel Qualcomm’s growth as we move through the upcoming technology transitions and extend our technologies into new user experiences, services and industries,” said Steve Mollenkopf, CEO of Qualcomm, in a statement.
Qualcomm has been under pressure from increased competition, poor financial results and investigations from anti-monopoly regulators around the world.
The company’s shares have fallen more than 36 percent so far this year, and it cut 1,314 jobs in San Diego in November as part of a move to trim $1.4 billion in annual costs.
In April, activist investor Jana Partners urged Qualcomm to make changes – among them studying whether splitting the company would unlock trapped value for shareholders.
A recent sum-of-its-parts analysis by Merrill Lynch/Bank of America estimated that Qualcomm’s two divisions are worth $65 a share.
The company’s stock ended trading Monday at $46.83 on worries of stiff competition and the government probes.
Some investors believed Qualcomm’s mobile semiconductor division in particular would be an attractive takeover target for rival chipmakers if the company split, boosting their return.
But it also could have been bad news for San Diego, where the company remains one of the region’s largest employers with about 13,000 workers.
Most of Qualcomm’s $25.3 billion in revenue last year came from the sale of semiconductors that power smartphones and other mobile devices.
The bulk of its $5.7 billion profit stemmed from technology licensing, with device makers paying a royalty for using its patents.
The company’s board said the two businesses are intertwined and would have been difficult to break up. Profits from patent royalties pay for research and development in the chip businesses, helping to make it a technology leader.
In turn, R & D in the chip business results in additional patents that feed the company’s technology licensing arm.
Qualcomm has considered a break-up at least twice before. About 15 years ago, it filed documents with regulators signaling that it was planning to split. The move aimed to quiet complaints from Qualcomm’s chip customers, who balked at signing patent licensing agreements when they were already buying Qualcomm semiconductors. Some referred to Qualcomm patent licensing practices as a tax on the mobile industry.
About seven years ago, the company contemplated splitting to better position itself in legal battles with Nokia, Broadcom and other rivals. Each time its board called off the break up.
Qualcomm appointed a special committee to look at the split again. It included new board members that both Qualcomm and Jana Partners agreed to add to the company’s director line up earlier this year.
“The board and management team have concluded that our current corporate structure creates important and unique strategic advantages for Qualcomm and will continue to drive substantial shareholder value,” said Thomas Horton, chairman of the special board committee, in a statement.
