A Break-up Won't Solve Qualcomm's Problems

A proposed break-up of Qualcomm by activist investors may give a boost to the company’s stock in the short-run. But it won’t solve Qualcomm’s problems. Innovation would. For years, Qualcomm has been a stellar performer on Wall Street, rewarding long-term investors handsomely. For a good reason: the company’s revenues and earnings have been growing by leaps and bounds. Qualcomm has been in the right business at the right time—wireless technologies--riding one mobile communications trend after another, as its products became the industry standard. Now, Qualcomm is the leading maker of LTE chips, and has a long list of big customers, including Samsung Electronics and Apple. Qualcomm’s revenues come from the manufacture and sale of chips that make their way into much of the world’s smartphones, and from royalties from licensing the company’s technology to other chipmakers. Simply put, Qualcomm has turned into a sole toll collector for almost every smartphone made around the world. And as a sole collector it has been a price-maker, setting the price of the tolls. That could explain the company’ hefty operating margins over the last two decades. Over the last twelve months, Qualcomm’s Wall Street performance has stumbled, however, losing more than 12% of its value compared to a 14.5% gain in the S&P 500. Still the company has more than $17 billion in cash and no debt. That’s why activist investors have been circling Qualcomm, looking for ways to unleash shareholder value, like a break up of the company. Qualcomm’ Financials as of 4/11/2015