Qualcomm, Inc. (QCOM) Can Consider Spinning Off Its Chip Unit, Under Activist Investor Pressure from Jana Partners


Qualcomm, Inc. (NASDAQ:QCOM) may be forced to breakup amid pressure from unsatisfied investors such as Jana Partners LLC. The declining price of Qualcomm is no good news to activist investors in the stock and Jana Partners is leading the way in the push for the company to separate its chip business into a standalone company with hopes that such a move would bolster shareholder returns. Shares of Qualcomm have declined more than 5% so far this year.

Jana Partners is currently one of the largest shareholders of Qualcomm. The hedge fund is not only asking for the separation of the chip business from the more lucrative patent licensing unit, but also asking for more buybacks and adjustment of executive pay. Issues of cost also worry Jana Partners and the hedge fund is calling for improvement in cost cuts, hoping that such steps will spare more money that can be returned to shareholders.

Separating off chip business

The issue of spinning off the chip business is something that Qualcomm, Inc. (NASDAQ:QCOM) had considered sometimes back, but the company halted such a move. It remains to be seen whether the board of the chipmaker would be willing to go back to a plan they had called off nearly 15 years ago.

Qualcomm, Inc. (NASDAQ:QCOM) has two key revenue sources, chip-making and patent licensing. The company is the largest supplier of mobile chips and has been giving Intel Corporation (NASDAQ:INTC) headache in the segment. Qualcomm generates most of its revenue from royalties due to licensed technology.

Jana Partners’ $2 billion investment                              

Jana Partners, which has about $2 billion invested in Qualcomm, Inc. (NASDAQ:QCOM), believes that the company can do better by spinning of its chip business and focus on cost curtailment. Qualcomm recently announced $15 billion stock repurchases of which $10 billion will be spent within the next 12 months, showing a company that is more generous than most of its peers.

Sum of parts

If Qualcomm, Inc. (NASDAQ:QCOM) agreed to breakup, its chip business could be valued at $74 billion and the licensing business could have a market value of $87 billion. Separating of the chip business could also trigger buyout interest from the likes of Intel, which is aggressively working to gain foothold in mobile.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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