Qualcomm feels investor pressure to spin off chip business
Activist investor Jana Partners has asked the chipmaker to divide its chip and patent licensing businesses in hopes of boosting Qualcomm's sagging share prices.
The activist investor's request is documented in a quarterly letter sent to Jana investors and viewed by the Wall Street Journal. The publication reports that Jana is also asking Qualcomm to cut costs, accelerate stock buybacks and make changes to its executive pay structure.
Last month, Qualcomm said it would buy back up to $15 billion in shares and raise its quarterly dividend to 48 cents per share from 42 cents. The US chipmaker said the new program replaces the previous capital return scheme -- which has authorization for $2.1 billion still remaining -- and would finance the program mainly through borrowing from public debt markets.
Jana is one of San Diego-based Qualcomm's largest shareholders, having purchased a stake in the chipmaker worth over $2 billion.
In the letter, the activist investor argues that the buyback program is a "positive step," but Qualcomm has a responsibility to do more to capitalize on its dominant position in the chip market. According to the WSJ, Jana says Qualcomm's chip business "is essentially worthless" at the firm's present market value.
In addition, a source close to the matter said Jana and Qualcomm executives have held private talks on the matter since late last year, and these talks were labeled "constructive" in the letter.
This is hardly the first time an activist investor has exerted pressure on a tech company. Billionaire Carl Icahn last year, for instance, pressured eBay to spin off its PayPal unit and pushed Apple to increase the size of its stock buyback. Estimates by Preqin show activists are infused with cash among investors eager to improve companies' financials, with more than 400 activist hedge funds now having more than $125 billion, according to estimates by Preqin.
Qualcomm is one of the world's largest makers of chipsets used in mobile devices. The firm also supplements its income through patent-licensing deals. However, the company's stock price has gradually fallen over the past year as competition heats up and partnering companies look to home-grown chips to power their devices.
Samsung -- a long-standing customer of Qualcomm -- dropped the company's chips from its latest Galaxy S6 flagship smartphone earlier this year and instead opted for an internally developed processor.
At the time of writing, Qualcomm shares have risen by 0.51 percent to $69.16. The company has a market capitalization of $114.08 billion.
In February this year, reports suggested that Qualcomm would have to pay the Chinese government a record fine of $1 billion in order to end a 14-month antitrust probe which suggested the company's licensing practices were anti-competitive.
This story originally appeared at ZDNet under the headline "Investor pressures Qualcomm to spin-off chip unit."