Qualcomm plans cuts, may spin off assets
Plus, chipmaker under investigation by the European Union’s antitrust authority
Qualcomm has announced that it is to cut costs by about $1.4 billion per year and study the possible sale of assets as part of a company realignment.
The mobile technology company is also shaking up its board of directors as part of an agreement with investment company Jana Partners. Jana, which owns a chunk of Qualcomm’s stock, has pressured the company to spin off its chip division from its patent licensing business. The realignment was announced as Qualcomm reported its profit fell by nearly half in the April to June quarter on revenue that declined by 14 percent from a year earlier.
“The changes we are announcing today are designed to enable us to right-size our cost structure and reposition Qualcomm for improved financial and operating performance,” CEO Steve Mollenkopf (pictured) said in a statement.
Qualcomm plans to cut $1.1bn from its annual costs of $7.3bn. It also intends to cut share-based compensation by $300 million per year. It will cut jobs, close offices and shift more operations to lower cost locations.
Palo Alto Networks Chairman and CEO Mark McLaughlin and Tony Vinciquerra, senior advisor to Texas Pacific Group and former CEO of Fox Networks Group, have joined Qualcomm’s board as part of the deal with Jana. Together with Jana, Qualcomm will appoint another board member soon.
The chipmaker is also under investigation by the European Union’s antitrust authority, which suspects the company of abusing its dominant position in the market for 3G and 4G chipsets used in smartphones and tablets.
The European Commission has initiated proceedings against Qualcomm in two investigations. The first concerns whether Qualcomm breached EU antitrust rules by offering financial incentives to phone manufacturers on the condition that they buy chipsets exclusively, or mostly, from the company; the second, whether Qualcomm engaged in predatory pricing, selling below cost to force competitors out of the market.
Mobile processors and baseband chipsets, which handle the communications protocols used in wireless networks, form a significant proportion of the cost of a mobile phone and, at least at the low end of the market, margins are getting thinner, leaving phonemakers more vulnerable to pricing pressures from their suppliers.
Qualcomm’s business practices have come under antitrust authorities’ scrutiny before. Earlier this year, Chinese regulators fined Qualcomm $975m for overcharging device makers there. While the Commission is investigating the issue of financial incentives on its own initiative, the predatory pricing probe was triggered by a complaint.
Commission officials declined to name the complainant, but UK semiconductor company Icera filed such a complaint against Qualcomm in 2010.
Staff at the Icera division of nVidia, which now owns the company, could not immediately be reached for comment. NVidia bought Icera in 2011 in order to add 3G and 4G baseband capabilities to the chipsets it was developing for mobile phones. However, nVidia has now abandoned development of baseband chips, and said in May this year that it will buy such components from other suppliers when Icera’s current 4G LTE modem is no longer suitable.
The Commission has no deadline for completion of its antitrust investigations. While it has been investigating Qualcomm’s business practices for some time, the recent announcement marks a new stage in the process.
Qualcomm said it had been notified that the Commission had initiated proceedings against it in the two ongoing investigations. It will continue to cooperate with the Commission, but believes the concerns are without merit, it said.