Dear diary. Gotta axe 15% of staff, it's like I'm cracking up – Qualcomm
Top investors pour on pressure as latest financial results disappoint
Mobile chipmaker Qualcomm says it's putting its business under the microscope with an eye to restructuring after posting lackluster third-quarter results, including revenue that missed estimates.
"We are making fundamental changes to position Qualcomm for improved execution, financial and operating performance," Qualcomm CEO Steve Mollenkopf said in a canned statement.
Those measures will not only involve reducing spending by $1.4bn – including cutting Qualcomm's workforce by 15 per cent – but also making radical changes to its business and financial structure, which could potentially include "business separation alternatives."
In April, Jana Partners, which holds a $2bn (£1.28bn) stake in Qualcomm, called for the company to spin off its chip unit from its patent licensing biz. That option seems more likely now that Qualcomm has added Mark McLaughlin of Palo Alto Networks and Tony Vinciquerra of Texas Pacific Group to its board of directors, specifically at Jana's request. A third new director will be selected by Qualcomm but will also have to be approved by Jana.
In the meantime, in addition to the aforementioned layoffs, Qualcomm plans to streamline its engineering operations and move more resources to low-cost parts of the world.
The news comes shortly after Qualcomm posted its results for the three months ending on June 28, in which it met Wall Street's expectations on earnings but missed on revenue.
Total revenue for the quarter was $5.83bn, which, while within Qualcomm's guidance from last quarter, was down 14.3 per cent from the year-ago quarter and down 15.4 per cent sequentially.
Hardest hit was Qualcomm's Equipment and Services segment, the silicon-making segment that Jana would like to see off. Revenue from the division was down 22 per cent annually, at $3.84bn, even though chip shipments were up by 24.2 per cent.
Licensing revenue saw a modest 5.7 per cent year-on-year increase to $1.99bn. But licensing accounted for just 34 per cent of the quarterly revenue mix, so the division's gains could offset the shrinking chippery division.
The real issue in Q3, however, was profit. Qualcomm met analysts' estimates with earnings of $0.99 per diluted share. But its net income for the quarter was just $1.18bn, down 47.1 per cent from a year ago.
Whether splitting Qualcomm into two companies will really help clean up the mess remains to be seen, but Mollenkopf added that the company does not plan to comment further on its restructuring plans until it conducts a thorough review of its business with the help of outside finance firms. That review is expected to complete by the end of the calendar year. ®