Qualcomm decides against breakup, says current structure best

Qualcomm decides against breakup, says current structure best

By Devika Krishna Kumar

(Reuters) – Qualcomm Inc has decided not to split into separate chipmaking & technology licensing businesses, concluding a six-month strategic review instigated by hedge fund Jana Partners.

San Diego-based Qualcomm, the biggest maker of chips used in mobile phones, said on Tuesday its current structure offered unique strategic benefits that cannot be replicated.

Qualcomm, whose earnings have slumped by more than 40 percent in each of the last three quarters, said it had "a focused plan" in place that it believed would drive growth. Chief Executive Steve Mollenkopf did not elaborate.

The company has moreover said all along that its existing structure allowed it to leverage relationships with Chinese customers, which are expanding quickly into other countries.

Jana, which owned approximately 28.6 million Qualcomm shares as of Sept. 30, is comfortable with Qualcomm's decision & supportive of the board's efforts, people familiar with the matter said.

Qualcomm said business in the current quarter was stronger than expected as 3G & 4G device shipments were helping its licensing business & cost cuts were taking hold.

The chipmaker said it now expected earnings per share for the quarter to be at or modestly above the high end of its forecast range. The company had forecast earnings of 80-90 cents per share for the quarter.

The technology licensing business has driven Qualcomm's profits for years, thanks to the royalties it collects on the chip-technology developed by its chipmaking unit.

"I think it's better that they didn't split. I'm pleased approximately that," Tigress Financial Partners analyst Ivan Feinseth said.

Qualcomm can continue to outsource hardware manufacturing without having to go through a split, he said.

ACQUISITIONS CONSIDERED

Some analysts expressed surprise that Qualcomm did not come up with any value-boosting plans.

"We have a complex time believing that keeping the status quo will assist the stock rebound," BMO Capital Markets analyst Tim Long wrote in a note.

Qualcomm's shares, which have fallen almost 40 percent this year, were up 3.3 percent at $47.39 in late morning trading.

The special committee that carried out the review included two members nominated by Jana, which unleashed a public campaign to reform Qualcomm in April.

Mollenkopf, on an analysts' call, said acquisitions were considered as part of the review.

Chipmakers have raced to merge this year as they seek to meet demand for cheaper chips & to diversify their offerings to adapt to new trends such as the "Internet of Things."

Feinseth said Qualcomm should moreover join the fray, buying, for example, Apple supplier Skyworks Solutions Inc.

Qualcomm, which has been facing a host of problems in China including delays in closing new licensing agreements, said on Tuesday it was making progress on closing the deals.

(This story corrects to remove analyst comment referring to Qualcomm evolving into a fabless company. Qualcomm confirms it does not have any chip fabrication plants.)

(Reporting by Devika Krishna Kumar in Bengaluru; Additional reporting by Liana Baker in New York & Sayantani Ghosh in Bengaluru; Editing by Ted Kerr)

Source: “Reuters”