No spinoff for Qualcomm's chip arm

Summary:The mobile communications company says it is cancelling plans to spin off its semiconductor business following deals to develop dual-mode chips. It's also replacing its chief operating officer.

Wireless technology provider Qualcomm won't spin off its mobile phone chipmaking business and instead is realigning some of its divisions, the company announced Tuesday.

Also Tuesday, Qualcomm announced that Richard Sulpizio, who joined the company in 1991 and was named chief operating officer in 1998, has resigned. Current Chief Financial Officer Anthony Thornley will replace him. Sulpizio will remain on as a member of the board of directors.

A statement released by Qualcomm this morning did not elaborate on the reason for Sulpizio's departure, other than to say it was to "pursue personal interests."

News of the shakeup didn't sit well with investors. Qualcomm stock slid more than $3, or about 5 percent, to $57.8 by midmorning trading.

Some analysts weren't happy either. John Dryden, a wireless technology associate analyst at investment bank J.P. Morgan H&Q, said Qualcomm's chip manufacturing arm didn't have the high returns like other Qualcomm businesses, which license the rights to use code division multiple access (CDMA) technology in phones. About 15 percent of the world's phones use CDMA, which was developed by San Diego-based Qualcomm.

"This just drags Qualcomm down. We were hoping that a spinoff would occur and then we would have been aggressive owners," Dryden said. "We like the chipset business as a standalone company; it could have been a dominant player."

Analysts believe that Qualcomm wanted to spin off its chipmaking unit as a way to obtain the rights to make chips that support GSM (Global System for Mobile Communications), another phone standard that is slowly emerging as the dominant phone standard in the world. The new company would have been given the patents that Qualcomm won for CDMA chips, then effectively traded them for the right to make GSM chips.

By producing dual-mode chips, capable of working on either CDMA- or GSM-based networks, Qualcomm could ensure that its products had a larger customer base.

But since the announcement in July 2000 of the intended spinoff, Qualcomm has either entered into new chip supply agreements or extended old ones with 40 companies--including Nokia, Fujitsu, Matsushita and NEC--to develop these so-called multi-mode chips, making the spinoff unnecessary.

"Last year we viewed the spinoff as necessary," Qualcomm Chief Executive Irwin Jacobs said in a statement. "Since that time, we have entered into agreements that provide us considerable freedom to support the global expansion of the wireless industry."

As a result of shelving the spinoff idea, Qualcomm has decided to realign some divisions within the company. The company has established two new business groups. One is the Wireless & Internet group, which will be headed by Executive Vice President Paul Jacobs and will oversee the development of BREW, Qualcomm's own telephone standard, and Omnitracs, Qualcomm's wireless business software unit.

The second is the CDMA Technologies Group, which will produce mobile phone chips, collect royalties on CDMA patents and oversee the operation of SnapTrack, a wireless location pinpointing technology. Donald Schrock will continue to lead the unit as group president.

Topics: Hardware, Patents

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