The strategic review is now over and the results are in – no breakup is coming to Qualcomm:
Following the review, upon the unanimous recommendation of the Special Committee, the Board unanimously concluded that the Company’s current corporate and financial structure best positions Qualcomm to maintain its technology leadership and product strength, so as to drive the greatest long-term stockholder value.
“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 Incorporated. “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.”
Some of the ‘strategic benefits’ of keeping the two units together highlighted in the press release are related to R&D & IP, which makes some sense. Additionally, the company thinks there are some cost & tax synergies by keeping them together. The WSJ notes that the company’s structure has seemingly led to reviews by various regulatory bodies for potential anti-trust issues, but the company thinks it is in compliance with the various laws.
Jana remains a large shareholder of the company, with ~1.9% of the shares outstanding, and its two handpicked directors were part of the Special Committee which made the recommendation. Given that, the firm said it was ok with the decision. Jana did have some other ideas to improve performance including cutting costs and accelerating share buybacks that the company appears to be pursuing or has already implemented. Despite those successes, its QCOM investment remains a loser.
Shares rose on the announcement, but that was likely because it was also accompanied by better guidance. Barron’s had a nice roundup of the reactions from the analyst community, including a downgrade from BMO’s Tim Long. Apparently, he ‘expected some other changes to boost shareholder value’ in the announcement and none were forthcoming. The WSJ’s Heard On The Street thinks the decision was right, but the hard part is to come as it needs to find a way to fix its operations.
For now, just like 15 years ago, it seems like Qualcomm’s structure is fine the way it is. Sometimes history does repeat itself.
Disclosure: Author holds no position in any stock mentioned.