Qualcomm facing pressure from hedge fund to break up its chipset and patent-licensing units

Qualcomm (NASDAQ:QCOM) is facing pressure from an activist shareholder, the hedge fund Jana Partners, to break up its chipset business from its patent-licensing arm, with Jana arguing that the chip business is "essentially worthless" at current valuations.

Qualcomm is the world's largest mobile chipset supplier, but around two-thirds of its profit comes from royalties it collects on patents from CDMA, LTE and other technologies used in phones around the world.

In a letter to its investors, which was seen by multiple news outlets, Jana wrote that Qualcomm should cut costs, increase stock buybacks and alter its executive-compensation plans, financial reporting and board of directors. Jana has purchased a $2 billion stake in the company and owns around 4.4 million Qualcomm shares, making it one of the company's largest shareholders. Jana controls around $11 billion in total assets.

"Qualcomm welcomes input from our investors and has a track record of active engagement with stockholders," a Qualcomm spokeswoman told the Wall Street Journal. "The board and management team will continue to consider actions that are in the best interests of all stockholders."

Jana wrote in the letter that since late last year it had been engaged in a "constructive dialogue" with Qualcomm's management over how the company could boost its share price. "We believe that the board and management recognize the need to address its historical underperformance and improve investor perceptions of the company," Jana wrote.

Jana Managing Partner Barry Rosenstein said Jana would work with Qualcomm to increase its share price. "We think there are a lot of levers to pull and there is a lot of value to be created," Rosenstein said at the 13D Monitor Active-Passive Investor Summit in New York, according to Reuters.

According to the WSJ, Qualcomm's stock price is down 11 percent during the past year and the company's total returns to shareholders have been weaker than the overall NASDAQ stock exchange during the past five years. However, Qualcomm's shares have also bested its peers in the chipset industry, and the company has produced $37 billion in dividends and share buybacks since 2003. Qualcomm also announced a $15 billion stock buyback announced in March, with $10 billion due to be repurchased in the next 12 months, according to the Journal.

At the same time, Qualcomm's Snapdragon chipset was left out of the Samsung Galaxy S6 and S6 Edge smartphones in favor of an in-house chip from Samsung. Qualcomm has also faced pressure from MediaTek and Intel in the smartphone market, especially in China.

In February, Qualcomm agreed to pay a $975 million fine to settle a Chinese regulatory investigation. Qualcomm is also facing antitrust probes into its business practices in the U.S., Europe and South Korea.

For more:
- see this WSJ article (sub. req.)
- see this Reuters article

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