Qual­comm plans cuts, may spin off as­sets

Tech Advisor - - NEWS -

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.

An­titrust probe

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.

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