The turmoil around mobile chip maker Qualcomm looks likely to continue amid reports that officials this week could announce job cuts and unveil the results of a strategic review that could include splitting up the company.
Qualcomm executives are scheduled to announce fiscal third-quarter financial numbers July 22, and with that announcement could come decisions around reducing corporate expenses and how the chip vendor will proceed into the future.
According to unnamed sources in a report on the Website The Information, company executives are getting ready to lay off "several thousand employees" from their 30,000-person workforce. The move comes following disappointing first-quarter earnings numbers.
At the same time, Qualcomm executives reportedly are considering several options—including breaking the company in two—as part of a larger strategic review to help it negotiate its way through a smartphone market that is seeing demand slow, prices of Android devices fall and increasing competitive challenges in the important China market.
During a conference call in April to discuss the fiscal second-quarter numbers, CEO Steve Mollenkopf said the company's reduced outlook was disappointing and that officials had begun a "comprehensive review of our cost structure."
"The goals of this review are to align our cost structure with the changing marketplace and improve efficiency," Mollenkopf said, according to a transcript on Seeking Alpha. He added that "we have begun a comprehensive assessment of costs and opportunities for greater efficiency company-wide with the help of an outside expert" and that he would report on those efforts during the third-quarter earnings call.
Citing unnamed "people familiar with the matter," the Wall Street Journal reported that executives could discuss would be splitting up the company and returning more money to shareholders, among other options. Qualcomm may also make changes to its board of directors, giving Jana Partners—which, with more than a $2 billion stake in the company, is one of its largest private investors—input into who will sit on it. However, the sources also said the plans were still developing, and that it is possible that no announcement will be made.
Qualcomm has declined to comment to the media on the reports.
Qualcomm executives in the past have considered breaking up the company, though eventually they have thought it better to keep it intact. The latest push for a split came in April, when activist investor Jana Partners started publicly pushing executives to consider separating the company's chip business from its patent-licensing unit. The chip business is the largest contributor to Qualcomm's revenues, while the licensing unit accounts for more than half the company's profits.
Doing so would add Qualcomm to a list of other tech vendors—most notably Hewlett-Packard—that either have broken up or are in the process of doing so. Other examples include online auction site eBay spinning out its PayPal online payment business and Symantec separating its security and data backup units. Storage giant EMC also has been under pressure from some investors to spin out VMware and to rid itself of its federation business model.
During the April conference call, Mollenkopf said that when discussing splitting the company, "there are lot of puts and takes and those puts and takes change over time depending on the situation, but I would say just broadly you should think of the businesses as having significant synergies in the ability to deliver products to market."
This has been a tough year for Qualcomm, one that started off when Samsung, reportedly concerned about overheating issues with Qualcomm's new Snapdragon 810 mobile system-on-a-chip (SoC), decided not to use the chip in its Galaxy 6S smartphone. Qualcomm also has had to deal with various antitrust investigations in such regions as the United States, China, South Korea and, most recently, the European Union.
There is also the issue of a changing global smartphone market. IDC analysts in May said they expect smartphone shipments worldwide will grow 11.3 percent in 2015, a slowdown from the 27.6 percent growth in 2014. This is due in part to the increasing maturity of the large Chinese market as well as the slowing growth in the Android smartphone segment this year, to 8.5 percent.