Investor pressures Qualcomm to spin-off chip unit

In an effort to boost flagging share prices, activist investor Jana Partners has asked the chip maker to divide its chip and patent licensing businesses.

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Qualcomm

Jana Partners is placing pressure on Qualcomm to spin-off its chip unit away from its patent-licensing business in order to boost sliding stock 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 chip maker 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 chip maker 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.

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.

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