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Qualcomm decides not to split up after strategic review
Following a five-month review of its corporate and financial structure, mobile chip giant Qualcomm has decided to persist with the current model rather than split the company up.
Scott Bicheno
December 15, 2015
3 Min Read
Following a five-month review of its corporate and financial structure, mobile chip giant Qualcomm has decided to persist with the current model rather than split the company up.
The review was prompted by a downturn in financial fortunes coinciding with the loss of one of Qualcomm’s biggest chip deals – the flagship Samsung smartphones. Back in July of this year Qualcomm reported a 14% decline in revenue and a 47% drop in net income, which led to the announcement of 4,500 job cuts and the start of this review.
One of the more severe measures being considered was to split the company – HP style – in to the Snapdragon chip unit and the wireless technology licensing business. However the review concluded that the current set up has sufficient benefits and, inevitably, synergies to justify keeping it intact.
“The strategic benefits of the current structure will best fuel Qualcomm’s growth as we move through the upcoming technology transitions and extend our technologies into new user experiences, services and industries,” said Steve Mollenkopf, CEO of Qualcomm.
“The strategic benefits and synergies of our model are not replicable through alternative structures. We therefore believe the current structure is the best way to execute on our strategy to build on our position in the ecosystem and deliver enhanced performance and returns. Looking ahead, we have a focused plan in place that we believe will drive growth and we are off to a good start implementing that plan.”
Here’s what Qualcomm reckons its does well, and would do less well if it changed the current structure. QCT is mainly the Snapdragon stuff and QTL is the licensing bit:
Enhanced Technology/IP creation – QCT research and development (R&D) drives a substantial portion of Qualcomm’s innovative technology that is licensed by QTL, and corporate R&D drives early technology leadership, benefiting QCT product sales.
Enhanced Adoption of New Technology/IP – The chipset business facilitates early and broad adoption of the Company’s new technology and intellectual property (IP), encouraging adoption of such technology/IP across the global mobile ecosystem and new industries.
Earlier to market with leading-edge products – Qualcomm invests in fundamental R&D, driving, among other things, improvements in network performance, reductions in network costs, enhanced user experience and improved mobile computing. These innovations provide high value to global operators, device OEMs, consumers and applications and services companies.
Enhanced role with standards bodies and customers – The combination of Qualcomm’s leading technology innovations and global semiconductor product reach enables the Company to work more effectively within standards bodies and with major ecosystem partners to develop and drive new technology and deliver chipset products to customers operating at global scale.
Attractive financial returns – 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.
Cost and tax synergies – Qualcomm realizes significant annual cost savings in R&D and, to a lesser extent SG&A expenses, as well as tax synergies from not having to operate two separate companies.
Pro-competitive model benefits wireless industry and consumers – Qualcomm is an important enabler to the wireless industry, acting as a strong partner to carriers, OEMs and software and applications providers, and is a key supporter of a dynamic and competitive wireless industry.
As a further vindication of this strategy Qualcomm also revealed that the current quarter is set to better than previously guided thanks to a robust 3G/4G device market and the cost-cutting measures already underway. The overall message is that Qualcomm thinks it can get things back on track without having to do anything too drastic.
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