Executives with troubled mobile chip maker Qualcomm could decide as early as this week whether to break the company in two or push ahead through its current challenges as a single entity.
Qualcomm has been under pressure from activist investor Jana Partners to split up the company by separating its chip-making business from its licensing operations, a move that proponents have argued would enable it to return more money to shareholders and possibly convince antitrust regulators around the world to dial back their investigations of the company.
However, others argue that the two operations are too intertwined and that separating them would be detrimental to both.
Company executives and its board of directors have been considering their options for much of the year, and Bloomberg, citing anonymous sources, reported that the board will meet within the next few days and could announce a decision by the end of the week. While a decision has yet to be made, Qualcomm officials reportedly are leaning toward keeping the company together, according to the news site.
It’s hard to imagine a more difficult year than what Qualcomm has endured in 2015. The company has seen its stock price fall by a third, it lost the business of a significant customer, quarterly financial numbers have been disappointing and it is being investigated for anti-competitive business practices in different regions worldwide. Most recently, antitrust regulators with the European Union accused Qualcomm of using its size and influence to drive competitors from the market. Qualcomm paid money to an unnamed top-tier smartphone and tablet maker to ensure that it used only Qualcomm’s baseband chipsets in its mobile devices, while also selling some of its baseband chipsets at below cost to damage rival Icera’s place in the market.
The net result was a loss of competition and harm to end users, the regulators said. Qualcomm officials denied the allegations. The company also has drawn the attention of agencies in the United States, South Korea and—most recently—Taiwan, and earlier this year settled a long investigation by Chinese regulators by agreeing to pay a $975 million fine and change its business practices in that country.
In addition, Qualcomm’s financial numbers have been hurt by what company executives have said some Chinese device makers were underreporting sales and royalties, a situation the chip maker continues to pursue. Qualcomm officials said the company also is being squeezed by the dominance of Apple and Samsung in the high end of the smartphone market while being challenged in the low end by some up-and-coming Chinese vendors.
The company was further hurt earlier this year when Samsung decided to use its own ARM-based systems-on-a-chip (SoCs) rather than Qualcomm’s 64-bit Snapdragon 810 for its Galaxy S6 smartphone reportedly because of overheating. Qualcomm officials noted that dozens of other designs were using the Snapdragon 810, but Samsung was a major customer. Qualcomm this fall introduced the new Snapdragon 820 and Samsung reportedly will use it in some of its Galaxy S7 devices.
There have been some wins—most recently a patent licensing agreement with fast-rising Chinese smartphone maker Xiaomi—but it’s been the setbacks that have garnered the most attention. In July, the company announced it was cutting its workforce by 15 percent and looking at other restructuring options, including breaking the company in two.
However, opponents of the move and some analysts have noted how tightly enmeshed the licensing and chip-making units are. Qualcomm gets the bulk of its revenues from the chip-making side, but most of its profits through licensing. It has been those profits that have fueled R&D on the chip side, creating innovative technologies that can then be licensed.
A number of other tech vendors have decided to split apart in hopes of gaining improved market share, efficiencies and cost advantages. The best-known company was the iconic Hewlett-Packard, which on Nov. 1 officials broke in two, creating Hewlett Packard Enterprise (which sells enterprise IT solutions and services) and HP Inc. (focusing on PCs and printers). In addition, eBay shed its PayPal business this year, while Symantec separated its storage and security businesses.
Before Dell announced it is buying EMC for $67 billion, the storage vendor was under pressure by activist investor Elliott Management to spin out or sell its VMware business.