Hedge fund Jana Partners wants Qualcomm to spin off chip business
14 Apr 2015
Activist hedge fund Jana Partners said it had taken a $2-billion stake in the chip-maker Qualcomm and was in discussion with the company's management regarding several strategic changes, including a sale or split of its CDMA chipset business as also an acceleration to its recently announced $15 billion stock repurchase.
In its letter to investors, Jana said its proposed changes, also included a renewed focus on reduction of corporate costs, executive incentive and corporate governance changes, and strategic M&A.
It added the steps could help San Diego-based Qualcomm recover from recent earnings shortfalls and a significant under-performance versus industry peers.
Jana calculated that Qualcomm traded at just 9-times earnings, when excluding the company's $30 billion in cash. However, at that multiple, Jana believed Qualcomm's chipset business, which earned $3.5 billion in profits before tax in 2014, was not being valued by the market.
Jana said Qualcomm could better demonstrate the value of its chipset business Qualcomm CDMA Technologies and (QCT), its licensing businesses business Qualcomm Technology Licensing or (QTL) – by either separating the divisions into independent publicly-traded companies, or by combining them.
"We believe that the board and management recognize the need to address its historical underperformance and improve investor perceptions of the company," Jana said.
While buyback was a good step, Qualcomm needed to do more, including considering strategic deals, according to Jana.
In response to Jana's comments, Qualcomm claimed commitment to "maintaining an active dialogue with all stockholders."
The company, with a market value of $114 billion, reiterated plans to buy back $15 billion in shares, with $10 billion earmarked for the next 12 months.
Qualcomm's chip business faced intense competition in a crowded smartphone-chip market, according to commentators.
Samsung Electronics, longtime customer opted to use an internally developed processor for its new Galaxy S6 smartphone rather than Qualcomm's latest Snapdragon mobile chip, earlier this year.
Qualcomm's chips business had also come under regulatory scrutiny in China, with the company agreeing to pay a fine of $975 million in February, bringing a 14-month Chinese government investigation into anti-competitive practices to an end.
