US semiconductor Qualcomm has decided against breaking up the company, determining that its current corporate and financial structure best places it to improve returns and long-term shareholder value. The company, which comprises chip making and patent licencing businesses, also now expects to hit or exceed its previous profit forecasts.
US semiconductor firm Qualcomm (NASDAQ:QCOM) has decided against breaking up the company, determining that its current corporate and financial structure best places it to improve returns and long-term shareholder value.
The Qualcomm board formed a special committee, chaired by presiding director Thomas Horton, earlier this year to review its current structure and possible alternatives, hiring multiple advisory firms to assist it.
Horton said in a company statement today that the board and management team have “concluded that our current structure creates important and unique strategic advantages for Qualcomm and will continue to drive substantial stockholder value”. The current structure comprises a chip making business, Qualcomm Technologies, and a patent licencing one, QTL.
The company has also revised its outlook for the first fiscal quarter of 2016, saying it is “seeing a stronger quarter … as 3G/4G device ASPs and shipments are favourably impacting the licencing business, and benefits are being realised from cost actions throughout the company”.
Qualcomm now expects to either hit or be “modestly above” the high end of the previous earnings per share guidance ranges for the quarter.
Falling revenues and stock prices, along with pressure from activist investor Jana Partners, prompted the San Diego-based chipmaker to announce in July that it would consider structural changes, including a potential breakup. The company, which manufactures a variety of telecoms technology, also announced plans to cut US$1.4bn in expenses, added two new directors in line with an agreement with Jana and promised to add a third.
Centerview Partners acted as financial advisor to the special committee, which Qualcomm said assessed and tested a “wide range” of options, which included looking at ways to mitigate the associated risks and challenges.
The special committee also brought in Boston Consulting Group to evaluate potential regulatory and market-based impacts and hired Jones Day as legal counsel for regulatory matters. The advisory team was also bolstered by DLA Piper, which acted as counsel to the board and special committee; Goldman Sachs and Evercore, which provided financial advice to Qualcomm; and Cravath, Swain and Moore, which served as counsel to Qualcomm on regulatory matters.
Qualcomm CEO Steve Mollenkopf (pictured) commented: “The strategic benefits of the current structure will best fuel [the company’s] growth as we move through the upcoming technology transitions and extend our technologies into new user experiences, services and industries.”
Qualcomm derives most of its profit from patent royalties charged to handset makers, but more than half of its revenues from the chip making business.
The company has come under fire from regulators internationally. Earlier this year, it agreed to pay a US$975m fine to Chinese antitrust authorities in connection with its licencing practice and it is also being looked at by regulators in the US, South Korea, Taiwan and the European Union.
Qualcomm’s chips are used in a variety of applications ranging from mobile phones to satellite tracking devices. It is an investor in global satellite broadband venture OneWeb.
