Qualcomm (NASDAQ:QCOM) Executive Chairman Paul Jacobs said the wireless silicon giant has no current plans to spin off its chipset business from its licensing business despite pressure from an activist investor to do so.
"We've had that discussion for a long time, many years the board has looked at it but we still think the synergies of having the businesses together outweighs the dissynergies," Jacobs told Reuters on the sidelines of an American Chamber of Commerce event in Seoul.
Jacobs, who stepped down as CEO in March 2014 after being at the helm since 2005, said, however, that the company is always evaluating its options and that the company's stance could change in the future.
Hedge fund Jana Partners, which has invested $2 billion in Qualcomm and is one of its largest shareholders, wrote in a letter to investors in mid-April that Qualcomm's chipset business is "essentially worthless" at current valuations.
At the time, Qualcomm played down an attempt from Jana to break up its chipset and patent-licensing businesses, arguing that keeping them together is in the best interests of shareholders. Jana wrote that Qualcomm should cut costs, increase stock buybacks and alter its executive-compensation plans, financial reporting and board of directors. Jana 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 said in April its board and management regularly review the firm's corporate structure. "Prior reviews have concluded that the synergies provided by our business model create more value for stockholders than could be created through alternative corporate structures," Qualcomm said in a statement at the time. "We will continue to evaluate opportunities to enhance stockholder value and are committed to pursuing the right course of action for all of our stockholders."
Qualcomm is the world's largest mobile chipset supplier, and while most of its revenue comes from chipset sales 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, whether or not they have Qualcomm's chips inside. Qualcomm has earned more than $50 billion in licensing revenues since 2000, according to The Wall Street Journal.
However, the licensing business is coming under more pressure from changes like the one the Institute of Electrical and Electronics Engineers pushed through earlier this year. For many years, the IEEE has encouraged companies to promise to license their patents to each other on a "fair, reasonable, and non-discriminatory basis." However, the IEEE had not defined what reasonable meant, letting companies negotiate royalty rates.
The new IEEE policies for the first time make "reasonable" rates tied to the "smallest saleable implementation" of a technology. As the WSJ has noted, that could mean applying royalty percentages to the price of chips that carry out a particular function inside a device, which would reduce royalty rates significantly.
Qualcomm also has made concessions on its licensing rates and practices in China, which could hurt Qualcomm's earnings and let Chinese smartphone makers keep more profit. Korea's Fair Trade Commission is opening an inquiry into the company's business there, likely with an emphasis on Qualcomm's licensing business.
- see this Reuters article
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