Qualcomm to lay off 15% of workers, considers breaking up the biz

July 22, 2015, 8:31 PM UTC
General Views of Qualcomm
Photograph by Konrad Fiedler — Bloomberg/Getty Images

Updated throughout: Qualcomm has hired outside advisors to determine if it should break up its business, according to CEO Steve Mollenkopf speaking on the company’s analyst call on Wednesday afternoon. That decision should come before the end of the year he said.

Qualcomm Incorporated also said it will cut $1.4 billion in costs through a corporate restructuring that will include job cuts for 15% of its staff as part of a massive corporate restructuring effort. The communications chip maker will also add Mark McLaughlin, President and Chief Executive Officer of Palo Alto Networks and Tony Vinciquerrato, Senior Advisor to Texas Pacific Group in the Technology, Media and Telecom sectors its board of directors as part of an agreement with an activist hedge fund that has taken more than a $2 billion stake in the chipmaker.

Jana Partners disclosed its stake back in April and began pressuring Qualcomm to cut costs, add more independent board members, and consider a breakup, much to the board’s dismay. Qualcomm instituted a share buyback plan, but Jana wasn’t mollified, and Qualcomm is clearly attempting to appease the fund with the cost cutting, the strategic review and by adding board members. Qualcomm will also add a third director to its board which will be selected by the company and consented to by Jana shortly.

For years, Qualcomm has been pressured to split its patent royalty business and its chip design business into two separate entities. Qualcomm owns a variety of valuable patents associated with mobile technology including the rights to the CDMA wireless technology that’s still used by many cell phones sold inside the U.S. It also has a variety of LTE patents. For others in the industry, paying Qualcomm royalties on patents that it also used in its own chip designs (which you also had to pay to license) was a tough sell.

The details of the plan came as part of Qualcomm’s third quarter financial results where Qualcomm reported revenue of $5.8 billion which were down by 14 percent year over year and net income of 1.2 billion which down by a staggering 47 percent. Qualcomm has seen increased competition in China from local vendors, saw Samsung decide to use its own applications processors over Qualcomm chips in certain handset, and has been hit be regulatory challenges in China and South Korea. Europe is now also looking at the chipmaker for violating antitrust regulations.

To add insult to injury the success of the iPhone, which contains Apple’s own chipset also means that fewer handsets using Qualcomm’s silicon are sold. Qualcomm expects sales in the next quarter to continue to decline 22 percent year over year. This environment is tough, and Jana’s insistence on cost-cutting isn’t crazy.

Qualcomm’s restructuring plan includes cutting a total of $1.4 billion. Of that $1.1 billion will come from closing offices and cutting workers. The other $300 million will be a result of reducing share-based compensation. The whole effort should be complete by the end of fiscal 2016. Meanwhile, Qualcomm will still be returning capital to shareholders via dividends and share buybacks.

However, analysts outside the financial world were a bit taken aback by the tenor of the cuts and questions that were asked of Qualcomm’s management. Patrick Moorhead, president of Moor Insights and Strategy said via an email:

Listening to the conference call, you would think it was a company losing lots of money. Qualcomm is widely profitable and this all comes off as a response to activist investors, potentially an over-reaction. The devil are always in the details and what really matters is where they are cutting costs and laying off people. I expect that those details will roll out over the next three months. I am glad to see that datacenter, small cell and IoE were discussed as growth areas as I see them as huge opportunities.

Subscribe to Data Sheet, Fortune’s daily newsletter on the business of technology.

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.

Read More

Artificial IntelligenceCryptocurrencyMetaverseCybersecurityTech Forward