Qualcomm (NASDAQ:QCOM) plans to announce thousands of job cuts this week as the chipset giant faces declining prices for smartphones and rising competition from Chinese vendors, according to a report from The Information.
The report, which cited unnamed sources, said the cuts could affect more than 10 percent of Qualcomm's roughly 30,000 employees, and are expected to be announced in conjunction with the company's earnings call this week. The report comes a week after the website Fudzilla reported that Qualcomm was in the midst of restructuring and could be cutting around 4,000 jobs.
A Qualcomm spokesman declined to comment. The San Diego-based company will report its quarterly earnings Wednesday afternoon.
In September 2014, the company had around 31,300 full-time, part-time and temporary employees. In December 2014, Qualcomm announced it would cut 600 employees, split roughly evenly between the company's operations in California and international employees.
Meanwhile, the Wall Street Journal reported that Qualcomm is expected to conduct a sweeping strategic review that will look at the possibility of a breakup of its key businesses, among other options. The report, which also cited unnamed sources, said the silicon vendor may announce it is considering that and other options, including returning more cash to investors, when it reports its earnings.
Qualcomm has been facing pressure to split apart its chipset and licensing divisions, though the company has said it currently has no plans to do so. 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. Jana wrote that Qualcomm should also cut costs, increase stock buybacks and alter its executive-compensation plans, financial reporting and board of directors.
While most of the company's 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.
"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," Qualcomm Executive Chairman Paul Jacobs told Reuters late last month.
The reports of the job cuts come at a trying time for Qualcomm. Last week the European Commission opened two formal antitrust investigations into Qualcomm's sales practices in the baseband chipset market. The first is looking at whether Qualcomm has violated the European Union's antitrust rules that prohibit the abuse of a dominant market position by offering financial incentives to customers on condition that they buy the baseband chipsets exclusively or almost exclusively from Qualcomm. The second is exploring whether Qualcomm engaged in "predatory pricing" by charging prices below costs to push competition out of the market.
Qualcomm said last week it is "disappointed" that the EC has started a formal probe but that it has been "cooperating and will continue to cooperate with the Commission, and we continue to believe that any concerns are without merit."
While Qualcomm is still the market share leader in smartphone application processors and baseband chipsets, it is facing increasing competition from MediaTek, Samsung Electronics and Spreadtrum Communications. Smartphone prices around the globe are falling, leading to declining margins for both OEMs and chipset providers.
Meanwhile, Qualcomm is facing hurdles in high-end phones. Samsung declined to use Qualcomm's Snapdragon 810 processor its Galaxy S6 and S6 Edge phones, which went on sale in April, and opted to go with its own in-house chips, depriving Qualcomm of millions of unit sales in popular smartphones.
For more:
- see this The Information article (sub. req.)
- see this Reuters article
- see this Fudzilla article
- see this WSJ article (sub. req.)
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Qualcomm unfazed by EC probes into its sales practices
Qualcomm's Jacobs: We have no plans to spin off chipset biz
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Article updated July 21 at 11 a.m. ET with additional information.