Breakup? Layoffs? Restructuring? Qualcomm has mulled a number of options to increase profitability over this year, but it seems none of which are to be.
Over the past year, the US chipmaker has suffered increasing pressure from stockholders including activist shareholder Jana Partners, as well as a steady drop in profits and falling share prices.
Reports surfaced in July suggesting Qualcomm was plotting a large shakedown of its business practices as the company struggled to meet earnings targets and endured slow smartphone shipment rates worldwide -- which, naturally, hits the company's finances due to chip sales and patent license fees.
In Q3 FY2015, the company failed to meet Wall Street expectations by reporting a net income of $1.2 billion, or 73 cents per share, rather than expected earnings of 95 cents per share on a revenue of $5.85 billion. This also led to Q4 projections becoming slashed.
The most obvious way to restructure would have been to split the chip and patent sides of the business apart into separate entities, of which Jana said would best serve shareholders.
However, Qualcomm has decided to dismiss the idea and keep the company as a whole. In a statement on Tuesday, the chip maker said following a "comprehensive review" of Qualcomm finances and structure, the company's board concluded "the company's current corporate and financial structure best positions Qualcomm to maintain its technology leadership and product strength, so as to drive the greatest long-term stockholder value."
Steve Mollenkopf, CEO of Qualcomm, says the company's current structure has "strategic benefits" which cannot be gained through restructuring and are key to the firm's future success in new markets.
The chief executive says there is a "focused plan" in place to drive growth in the future, and despite pressure to do otherwise, Qualcomm will not split up its existing businesses.
Qualcomm believes by keeping chip sales and patent royalties together, the firm will be able to keep investing in fundamental R&D programs, such as the improvement of network performance, device OEMs and applications, and the chipset business "facilitates early and broad adoption" of Qualcomm's intellectual property, which in turn ropes clients into both sales and license fees.
"The combined model has an efficient capital structure and drives strong cash flow from Qualcomm's technology investments, enabling Qualcomm to invest in profitable growth opportunities alongside its significant stockholder capital return program," the company said.
Not only this, but Qualcomm also claims tax and running expenses for one firm will be less of a burden than operating two separate companies.
It's unlikely shareholders are going to be pleased with this announcement -- especially considering the firm's falling stock value -- but there may be a silver lining. Alongside the announcement, the chip maker said its financial projections for Q1 2016 are likely to be "at or modestly above the high end of the prior GAAP and Non-GAAP earnings per share guidance ranges," thanks to increased mobile device shipment rates which are filling the coffers of Qualcomm's license business through royalty payments.
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