Qualcomm Inc. is expected to conduct a sweeping strategic review
that will look at the possibility of a breakup, among other
options, after an activist investor pushed for change at the chip
maker.
Qualcomm, the world's largest maker of chips used in mobile
phones, may announce it is considering that and other
options—including returning more cash to shareholders—when it
reports fiscal third-quarter results Wednesday, according to people
familiar with the matter. The company's plans are in flux and there
is no guarantee it will make any such announcement then, the people
cautioned.
The potential moves Qualcomm is expected to flag largely track
suggestions the activist, Jana Partners LLC, has made since it
revealed a stake of more than $2 billion in the San Diego company
in April. Jana, an $11 billion New York hedge fund, has urged
Qualcomm to explore a breakup, cut costs, repurchase shares faster
and bring new blood to its board.
As part of its review, Qualcomm may also reshuffle its board and
give Jana a say in adding independent directors, the people
said.
A Qualcomm spokeswoman declined to comment, referring to the
company's statement in April in which it said it looks at its
corporate structure from time to time but that earlier reviews have
concluded shareholders are better off with the current
configuration.
Steve Mollenkopf, Qualcomm's chief executive, said around that
time the company wasn't pleased with its financial outlook and had
initiated a "comprehensive review" of its cost structure. He said
the company would report on the initiative when its reports results
this week.
Any breakup of the company would likely separate Qualcomm's
chip-production business from its patent-licensing operation. The
company, which has a market capitalization of $104 billion, gets
about two-thirds of its roughly $26 billion in annual revenue from
the chip business. But about two-thirds of its roughly $8 billion
in yearly profit comes from royalties from the sale of smartphones
that use technology it pioneered.
Should the company break up, it would be the latest technology
giant to reshape itself amid lackluster results and disappointing
share-price performance. This month, Hewlett-Packard Co. filed
paperwork to split itself into two publicly traded companies. On
Monday, PayPal Holdings Inc., formerly the online-payments arm of
eBay Inc., began trading on its own.
Qualcomm has already taken steps to boost its stock price, which
is down 14% this year. They include a $15 billion stock buyback
announced in March, with $10 billion set to be repurchased in the
next 12 months, a move Jana had called a good first step. Qualcomm
stock fell by less than 1% on Monday to close at $63.79 on
Nasdaq.
The company has forecast its per-share earnings for the quarter
at 85 cents to $1, down from $1.44 a year earlier, and revenue
between $5.4 billion and $6.2 billion, down from $6.8 billion—both
below Wall Street expectations at the time.
The move to explore a wide range of options will likely be
viewed as another successful activist push for Jana. Just weeks
ago, food company ConAgra Inc. agreed to exit its struggling
private-brands business, a move the hedge fund had advocated.
Qualcomm has seriously considered splitting into two for years,
according to people familiar with the matter. About 15 years ago,
the company announced a split and filed securities documents for
the plan before scrapping it after signing several large licensing
deals that eased concerns customers were growing wary of competing
against both sides of Qualcomm.
While defending its current corporate structure, Qualcomm
executives have said they regularly evaluate whether it makes sense
to keep the chip and patent-licensing businesses together.
A proposed split would also come at a time of rapid
consolidation among chip companies as they try to gain scale to
better cope with rising semiconductor input costs.
So far this year, there have been $87.4 billion in announced
semiconductor deals, according to Dealogic. That is more than the
volume for any full year on record.
In early March, NXP Semiconductors NV agreed to buy Freescale
Semiconductor Ltd. for $11.8 billion. Next, Avago Technologies Ltd.
struck a $37 billion deal to buy Broadcom Corp.—the largest
pure-technology deal ever. Then Intel Corp. agreed to purchase
Altera Corp. for $16.7 billion.
Analysts at Arete Research Services LLP earlier this year said
that a broken-up Qualcomm could enter the deal-making boom. The
analysts estimated the chip-making business could have a market
valuation of $74 billion, while the patent division could be valued
at $87 billion and suggested an independent chip business could be
attractive to suitors such as Intel.
Don Clark contributed to this article.
Write to Dana Mattioli at dana.mattioli@wsj.com and David Benoit
at david.benoit@wsj.com
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