Comms chips

Qualcomm Sees More Value in Staying United

Mobile communications chipmaker Qualcomm has ruled out dividing itself into separate manufacturing and patents businesses following what it calls a "comprehensive review" of its existing structure and alternative options.

Citing better 3G and 4G device prices and shipments than it had expected to see in the October-to-December quarter, and good progress on realizing cost savings, the company also indicated that earnings per share would be at "the high end" of the $0.80-0.90 range it previously forecast.

That would still mark a substantial decline since the corresponding quarter last year, when Qualcomm made $1.34 in earnings per share on a non-GAAP and $1.17 on a GAAP basis.

In a statement justifying the no-split decision, Qualcomm executives argued the current structure would deliver greater value to shareholders and allow the company to maintain its "technology leadership."

"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, Qualcomm's CEO. "The strategic benefits and synergies of our model are not replicable through alternative structures."

Qualcomm has been under pressure from an activist shareholder called Jana Partners to spin off its chips unit so that it can focus on the more valuable patents arm. (See Qualcomm Urged to Spin Off Chips Unit.)

Jana reckons the split could deliver a boost to Qualcomm's share price, which has fallen by 32% over the last year but was trading up 2.3% on the Nasdaq on Tuesday morning following news of the strategic decision.

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While most of Qualcomm's revenues come from the sale of communications chips, its intellectual property business -- based around the licensing of CDMA -- is thought to generate most of the profits.

Qualcomm developed a number of the technologies that underpin 3G and 4G communications but has been accused of abusing its power by charging exorbitant royalties for the use of its patents.

In February, it agreed to pay a $975 million fine to settle an antitrust spat in China and to reduce the licensing fees it charges in the country for some technologies. (See Qualcomm to Pay $975M in China Antitrust Spat.)

However, its licensing practices are also under scrutiny in other jurisdictions, including the Japan, South Korea and the US, while the European Union earlier this month accused Qualcomm of using its dominant position to block rivals.

In July, hoping to placate Jana, Qualcomm unveiled plans to cut $1.4 billion in costs, indicating that it would find savings by reducing headcount, streamlining its engineering business and shifting resources to lower-cost regions. (See Qualcomm Restructures to Cut $1.4B in Costs .)

Sales expectations took a knock earlier this year after South Korea's Samsung, a flagship customer, decided to use one of its own processors for the Galaxy S6 device rather than a Snapdragon chip from Qualcomm. (See Qualcomm Slashes Revenue Forecast by $1B.)

The growing popularity of Apple's iPhone, which does not use Qualcomm chips, is another headache for Qualcomm executives.

For the fiscal year ending September 2015, Qualcomm reported revenues of about $25.3 billion, 5% less than in 2014, and saw net income fall by 34%, to $5.3 billion.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

DHagar 12/18/2015 | 12:50:17 PM
Re: Better together MordyK, great!  There are truly some exciting opportunities, and I like your vision.  Let me know what happens with Qualcomm and timeframe and we can exchange information around that.  Otherwise, we can exchange information anyway and explore opportunities more broadly.  (Note:  I am developing some key projects right now in southern California.)

MordyK 12/18/2015 | 8:41:42 AM
Re: Better together @Dhagar Sounds real promising, and would love to get more info on that.
DHagar 12/16/2015 | 9:56:59 PM
Re: Better together MordyK, that's great - you get my vote!  They should listen to you.

If you set that up, let me know - we are developing an Analytics Center of Excellence (w/IBM) to apply data/information - could be a good combination!
MordyK 12/16/2015 | 3:06:29 PM
Re: Better together As a byproduct of a project I was working on, I developed a full business plan for Qualcomm to become a massive player in IoT, Context and Automotive with some significant though incomplete thoughts on Health. If I am introduced to the right person I would love to share it with them.
DHagar 12/16/2015 | 1:12:17 PM
Re: Better together MordyK, what great ideas!  Qualcomm would do well to take your advice.  The healthcare connection really makes sense as well as biotech is a major industry in San Diego area.

Your suggestion of developing their "platform" capabilities really makes sense.  They are uniquely qualified to do that and they can fill that space and drive the other markets as you outline.

MordyK 12/16/2015 | 12:33:15 PM
Re: Better together The analogy with Intel is really apropo. Both of them dabble with software platforms for various tech verticles, but neither of them really commit.

My comment reflected my lack of comprehension as to why they don't build full package enabling platforms that leverage powerful cloud architechtures along with the fact that they practically dictate the capabilities of the devices and their chips, which means that they can deploy new capabilities faster than any competitors.

But instead we see them forego those strengths and leave the field open to the respective OS owners like Android and Apple.

There are 2 verticles that are particularly crying out for a neutral third party's help, and Qualcomm is actively trying to sell chips , but their efforts are disjointed IMHO.

Health requires bare chip processing power, but also requires plenty of specialized and new sensors, specialised AI, data analysis, etc. Yet Qualcomm doesn't have a complete offering for health.

The car is another place where Qualcomm should be going gangbusters, beyond just the processing chips, but instead they forego the opportunity and hand it on a silver platter to Google. I would think they can do the sensors, AI, V2V, connectivity, self-driving, maps, apps, etc.

The proof that the automakers want a neutral third-party is that some of them went to the extreme and spent billions to acquire Nokia's former Here mapping & navigation business.

So in summary; if you're gonna be competing with Apple and Google, you should be spending like them on R&D and strategic reasearch bets , instead of cutting back.

I do understand that they are facing prssure from Wall Street, and I can't say what direction I would take if I were sitting in their place.
DHagar 12/15/2015 | 11:48:14 PM
Re: Better together MordyK, that's interesting - I have thought they were somewhat undervalued as well.  What do you see as the potential breakthrough areas?  5G or something else? 

I see them on par with Intel.
MordyK 12/15/2015 | 1:59:57 PM
Better together Now that they made the decision to keep the company together, I'd love to see Qualcomm figure out new ways to leverage the IP and engineering division's combined strengths. The fact that they'reo ut to placate Jana ith cost cutting instead of doubling down and spending more, bodes ill IMO.

Qualcomm has so much untapped and unrecognized potential, its scary!
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