Qualcomm Pressured by Major Investor to Split Company

Activist shareholder Jana wants Qualcomm officials to separate their licensing and chip businesses in order to boost shareholder returns.


Count chip maker Qualcomm among those tech companies under pressure from investors to split up their businesses.

According to the Wall Street Journal, activist investor Jana Partners is pushing Qualcomm executives to separate its chip business from its patent-licensing unit, part of a larger effort to grow the company's stock price, change how executives are paid and return more money to its shareholders. Jana officials also want Qualcomm to cut costs and increase stock buybacks, among other measures, according to the report.

The hedge fund is outlining its ideas in a letter to its own investors that is due to be sent out April 13. According to an unnamed source, officials with Qualcomm and Jana have had private meetings dating back to late last year, and in the letter to investors, Jana officials called the talks constructive. A Qualcomm spokesperson said that the chip maker "welcomes input from our investors and has a track record of active engagement with stockholders. The board and management team will continue to consider actions that are in the best interests of all stockholders."

The push by Jana—which has bought more than $2 billion in Qualcomm stock, making it one of the chip maker's largest private investors—adds to what has been a difficult year so far for the company, which is the largest supplier for processors for the mobile device space. It was reported earlier this year that Samsung had decided not to use Qualcomm's new Snapdragon 810 premium mobile system-on-a-chip (SoC) in its Galaxy 6S smartphone, opting instead to use its own ARM-based Exynos chips. Samsung reportedly was concerned about overheating issues with the Qualcomm processor.

Qualcomm executives downplayed Samsung's move, noting that more than 60 other "premium-tier mobile devices" are using the Snapdragon 810, and in February released statements from such big-name vendors as Microsoft, LG Electronics and Xiaomi supporting the Snapdragon 810. Qualcomm's silicon is found in many top-tier devices, including Apple's iPhones.

At the same time, Qualcomm has had to deal with antitrust issues in the United States, the United Kingdom and South Korea, although in February it settled a similar investigation in China by agreeing to a $975 million fine and to change some of its business practices.

Qualcomm also joins a growing number of tech companies under pressure from activist shareholders to make changes—including at times shedding business units—to improve their stock prices and return more money to shareholders. Online auction site eBay in September 2014 agreed to split off its PayPal business after pressure from investor Carl Icahn. Juniper Networks in July 2014 sold its Junos Pulse mobility security business, part of a larger restructuring effort by CEO Shaygan Kheradpir that was pushed by Jana and another investor, Elliott Management.

Elliott also has been active with other companies, including Riverbed Technology and storage giant EMC. Elliott officials have urged EMC to spin off the VMware virtualization business and get rid of the federation business model championed by EMC CEO Joe Tucci. EMC executives have pushed back at shedding VMware, and in October 2014 added VCE—a joint collaboration between the storage vendor, Cisco Systems and VMware that makes converged data center solutions—to its list of federated businesses, which also includes VMware, RSA and Pivotal.

Qualcomm reportedly earns about two-thirds of its profits from patent royalties from most of the smartphones sold over the past several years, with other profits coming from its chip-making business. According to the Wall Street Journal, Jana officials said a recent announcement by Qualcomm to buy back $15 billion of its stock was a good move, but that the chip maker needs to do more to bolster its share price and that its chip business has added nothing to the company at its current market value. Qualcomm officials said they like the current structure, but regularly evaluate whether to keep the licensing and chip businesses together or separate them.