It’s been a year to forget for QUALCOMM, Inc. (NASDAQ: QCOM) which has seen its licensing business come under immense scrutiny while the chips business continues to struggle amidst a lack of deals from some of the largest smartphone makers. A drop in second-quarter profit was always imminent, but a 46% drop essentially shows the magnitude of problems the company is struggling with.
Just when the chip maker thought that the past was all gone and it was time to focus on the future, a bombshell was yet again dropped with one of the company’s major shareholders discussing unexpected ways of boosting the company’s share price. The activist investor, Jana Partners, with a $2 billion stake in the company, believes QUALCOMM, Inc. shareholders and the company at large could benefit a great deal from the company being split into two.
Jana Partners affirms it may be high time that QUALCOMM, Inc. separated the chip business from the profit making segment of licensing wireless patents. Despite being handed a $975 million fine in China, the patent licensing business remains a core business, accounting for nearly two-thirds of the total business.
The activist investor believes the chip business is weighing in on the company’s valuation, and a probable split of the two business will help unlock more shareholder value. QUALCOMM, Inc. on its part affirms that the two businesses are well fitted for each other and that it was planning to address shareholder value with the repurchase of $10 billion worth of shares
Despite being cleared in China over issues related to the licensing business, QUALCOMM, Inc. is not yet over the hook as probes in the US, Europe and Korea could weigh in on profits going forward. However, the licensing business is expected to pick up in China as the company expects to earn more royalties from customers who did not want to sign licensing deals until the probe was over.
Independent chip designs hurt Qualcomm
The chip business has been hit hard by the fact that companies, which only buy its modem chips while using their own processors, are accruing more share in the smartphone business substantially affecting its revenue stream. Amidst the ongoing pressure and uncertainty of the chip business, QUALCOMM, believes it could generate profits in the range of $4.60 and $5 on revenues of between $25 billion and $27 billion.
QUALCOMM, hope in the chip business will mostly depend on its ability to seal a mega deal with Apple Inc. (NASDAQ: AAPL) for its next flagship phone as the semiconductor business is expected to reach $354 billion in 2015, according to Gartner. The semiconductor business is however expected to come under immense pressure with the strengthening of the dollar, which should affect the likes of Qualcomm in terms of earnings from abroad.