Qualcomm today offered investors its most comprehensive argument so far about why they should reject Broadcom’s efforts to take over the company, in part by promising that a standalone Qualcomm can generate long-term annual revenue growth of 6%-8%, and that the company’s serviceable addressable market (SAM) will grow by a factor of 6x from 2015 to 2020, to a total of $150 billion.
And perhaps most compelling, Qualcomm said its adjusted per-share profit will be between $6.75 and $7.50, on a revenue of $35 billion to $37 billion, in 2019. Reuters noted that those figures tower above analyst estimates of profits of $3.79 per share on revenue of $23.59 billion, according to Thomson Reuters I/B/E/S.
Qualcomm said it would reach its lofty revenue and profit goals through a new $1 billion cost-reduction program, gains from its still-pending NXP acquisition, and the “resolution of current licensing disputes.” Qualcomm’s lengthy presentation on the topic is available at the end of this article, and the company’s management presentation is available in a 34-minute video.
As for those “licensing disputes” specifically, Qualcomm said that it remains confident it will succeed in its high-profile infringement battle with Apple. Qualcomm added that the company counts roughly $5 - $7 billion in “catch-up royalties” due to it as part of the ongoing dispute.
“What many stockholders do not realize is that we have binding long-term license agreements with Apple’s contract manufacturers,” Qualcomm wrote in a letter to stockholders. “But Apple has required its contract manufacturers to cease paying us despite these existing binding contracts. Apple now continues to utilize Qualcomm’s intellectual property for its own profit without paying. In this litigation, Apple is seeking to avoid paying fair value for Qualcomm’s intellectual property, rejecting terms that are well established in the industry.”
Added Qualcomm: “While the legal process takes time, we believe we will successfully defend our licensing programs, as we have done in the past.”
Apple, for its part, has argued Qualcomm is overcharging for access to its patents.
Qualcomm’s overall message for investors was that the company sees far more opportunity—in 5G, patent licensing and elsewhere—if it doesn’t merge with Broadcom.
“Simply put, Broadcom is asking Qualcomm stockholders to assume tremendous risk and forgo significant potential value for the sole benefit of Broadcom stockholders,” Qualcomm wrote. “Broadcom is trying to force Qualcomm stockholders to make a decision before Qualcomm’s substantial 5G and other value opportunities are realized, while the stock is temporarily disrupted by Apple’s litigation. Broadcom has compiled a board slate of nominees, a majority of whom are friends of Silver Lake, rather than truly independent nominees or nominees with large cap tech board expertise. Broadcom also has done nothing to address its proposal’s substantial regulatory risk. Why is Broadcom now launching a proxy fight to replace Qualcomm’s Board when its proposed transaction has no clear path to completion?”
Interestingly, some Wall Street research firms see Broadcom’s attacks on Qualcomm as a positive for investors, as it could spark action from a Qualcomm management team that may have become sluggish. "We believe Qualcomm leadership is very smart, but over the last several years, the San Diego-based management team at times has been unassertive and complacent," Nomura wrote in a note to investors, according to CNBC. "Though now with Broadcom's hostile takeover attempt analogous to a 'gun to the head,' we expect the company to more aggressively focus on driving shareholder value in order to remain a standalone franchise."