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Qualcomm: Break-Up Would Be ‘Value Destructive,’ Says Morgan Stanley

July 27, 2015

Tiernan Ray, at Tech Trader Daily, provides us with excerpts from James Faucet’s (Morgan Stanley) analysis:

Following activist recommendations, Qualcomm announced that the board and management are launching a strategic review of the company’s corporate structure. One of the outcomes activists have encouraged is a separation of the QCT [chipsets] and QTL [licensing] businesses. We would not expect this outcome and believe it could be value destructive. […]

For our part, we have previously been wary of the cost cutting magnitude announced by Qualcomm given the highly competitive market. To wit, there has never been a company in the mobile handset or baseband market that has gone through massive cost reduction programs that has been able to sustain competitive positioning — in every case, those cost reductions were a precursor to lost market presence, and often being pushed fully out of the market.

Splitting the company would be foolish, though it’s a sobering possibility. To use a very, very exaggerated analogy, it’s like splitting a company into the R&D side (chipsets) and Sales and Marketing side (licensing). R&D doesn’t get the new revenue they need for future products. S&M doesn’t get the new products they need for future revenue. The scenario doesn’t end well. (Yes, in reality, the R&D/chipset business will have its own revenue stream (chipset sales), but the analogy illustrates how inter-related the divisions are.)

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Filed Under: Organization, Processors, Qualcomm

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