Activist investor Jana Partners LLC is asking Qualcomm to consider spinning off its chip unit from its patent-licensing business to save its dropping stock market price. This was a report from The Wall Street Journal from a quarterly letter which will be sent to Jana Partners investors.
Jana Partners LLC is one of Qualcomm’s largest shareholders. The activist investor is calling on the company to reduce costs and improve stock buybacks. Changes should also be done to its executive pay structure, financial reporting and board of directors according to the report.
Qualcomm mentioned last month that it would buy back more than $15 billion of shares and raise its quarterly dividend. Qualcomm also promised that it would continue to return at least 75 percent of its free cash flow to its shareholders year after year.
According to the letter, Jana Partners LLC mentioned that the buyback is a positive step however Qualcomm should gradually capitalize on its decisive position in the chip market. Jana Partners pointed out that Qualcomm’s chip business has no value at present at the company’s present market value. A huge portion of Qualcomm’s revenue is from selling so-called baseband chips which are essential for mobile phones to communicate with carrier networks. Most of its earnings mostly come from licensing patents for Qualcomm’s widespread CDMA cellphone technology. To remember that earlier this year, Samsung Electronics decided to use another mobile chip rather than Qualcomm’s Snapdragon. This was for its Galaxy S6 smartphone.
The executives of Jana Partners LLC and Qualcomm’s management have initiated private discussions since 2014. According to a person that is familiar with the conversations held by the two companies, the talks were very constructive. According to Reuters, Jana Partners LLC and Qualcomm were not available for comments regarding their deal outside regular U.S. business hours.
Since the beginning of the year, shares of Qualcomm, which has a market capitalization of $114.08 billion, have fallen about 7 percent.
Jana Partners LLC considers a breakup as well as other options to improve the giant chip maker’s stock price. The spin off from its patent-licensing business amounts to most of Qualcomm’s profits. Jana Partners has purchased a stake of more than $2 billion. This makes Jana Partners LLC the largest shareholder of Qualcomm.
About Jana Partners LLC
Jana Partners is a hedge fund created in 2001 by Co-Founders and Managing Directors Barry S. Rosenstein and Gary Claar. Before Jana was founded, founder Mr. Rosenstein was a Principal of Sagaponack Partners, which is a private equity fund. Jana has headquarters in New York City.
About Qualcomm Incorporated
Qualcomm Incorporated is a global semiconductor company that creates and markets wireless telecommunications products and services. The company has headquarters in San Diego, California, United States. It has 157 worldwide locations with the parent company Qualcomm Incorporated (Qualcomm), which includes the Qualcomm Technology Licensing Division (QTL). Qualcomm’s wholly owned subsidiary, Qualcomm Technologies, Inc. (QTI), operates substantially all of Qualcomm’s R&D activities, plus its product and services businesses, including its semiconductor business, Qualcomm CDMA Technologies. Qualcomm CEO Steve Mollenkopf announced at the company’s annual analyst day meeting in New York City that it is targeting the data center market with new server chips using ARM technology. These chips will soon be commercially available by the end of 2015. Qualcomm stock market evolution: http://www.marketwatch.com/investing/stock/qcom
About Samsung Electronics
Samsung Electronics Co., Ltd. is a South Korean multinational electronics company with headquarters in Suwon, South Korea. Samsung Electronics is the flagship subsidiary of the Samsung Group, with 70% of the group’s revenue in 2012. It is also the world’s largest information technology company by revenues since 2009. Samsung Electronics has manufacturing plants and sales networks in 80 countries with 370,000 employees. Kwon Oh-Hyun is the CEO of Samsung Electronics since 2012.
Samsung is a major manufacturer of electronic components such as lithium-ion batteries, semiconductors, chips, flash memory and hard drive devices for Apple, Sony, HTC and Nokia. Recently, Samsung Electronics has diversified into consumer electronics. At present, it is one of the largest manufacturers of mobile phones and smartphones. Samsung has been highly popularized by its Samsung Galaxy phones and line of devices. Samsung is also a manufacturer of tablet computers, especially its Android-powered Samsung Galaxy Tab collection. Samsung is also the world’s largest manufacturer of LCD panels, the world’s largest television manufacturer and world’s largest manufacturer of mobile phones. Samsung Electronics displaced Apple Inc. as the world’s largest technology company in 2011 and plays a huge role in the South Korean economy.
Home startup SmartThings, backed by PayPal co-founder Max Levich, was acquired by Samsung for $200 million last week. Samsung won the deal over several other prospects. Chief Executive Officer for SmartThings, Alex Hawkinson, says SmartThings “will operate as an independent company within Samsung’s Open Innovation Center group.”