Investors seethe, Qualcomm prunes

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Investors seethe, Qualcomm prunes

Qualcomm, seeking to appease investors after posting its worst sales decline since 2009, said it will cut its workforce by 15 percent and review strategic alternatives, including a breakup, as competition stiffens in the smartphone-chip market.

The company plans to reduce costs by a total of $1.4 billion, including cutting executive pay, and will shake up its board, in a statement Wednesday.

The San Diego-based company also forecast fiscal fourth-quarter sales and profit that may fall short of analysts’ estimates.

Chief Executive Officer Steve Mollenkopf is conducting the largest job reduction in the company’s history as its chip unit loses orders and the technology-licensing division suffers amid a consumer shift to cheaper smartphones. He is yielding to pressure from activist hedge fund Jana Partners, which has been pushing for cost cuts, executive pay realignment and the return of more capital to investors.

“It’s undeniable they’re losing share ? lots of it,” said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co., who has the equivalent of a hold rating on the stock. “They’ve got to take cost out.”

The planned job cuts will amount to about 4,700 positions, based on the 31,300 employees the company reported having at the end of fiscal 2014.

Qualcomm shares fell 3.8 percent to close at $61.78 Thursday in New York, leaving the stock down 17 percent this year.

As part of the moves, Jana Partners agreed to some standstill provisions, including that it won’t speak publicly about Qualcomm’s plans, call shareholder meetings or increase its holdings in the chipmaker to more than 4 percent. Changes to the company’s board include the retirement of Brent Scowcroft and Duane Nelles, while Donald Cruickshank won’t seek re- election in 2016, and Raymond Dittamore won’t stand for re-election in 2017, assuming he’s elected in 2016, Qualcomm said.

The company said the high-end processors and modems it sells are being hurt by shifts in the phone market. While Qualcomm does not name specific customers, it said the lucrative high end of the business is increasingly becoming the preserve of just two companies. The two biggest makers of smartphones are Samsung Electronics Co. and Apple Inc., and Samsung has started using its own chips in its Galaxy range. Apple uses its own processors alongside a Qualcomm modem in iPhones.


BY BLOOMBERG

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