Qualcomm Inc. (NYSE:QCOM), a leader in next-generation wireless technologies, told investors in a statement it's fairly confident its current strategy is the right one for shareholders.
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The chip giant defended itself after activist investor JANA Partners LLC said the company should consider a breakup and other options to boost its sagging stock price which has dropped 13% over the past year. JANA's intentions were first reported by the Wall Street Journal.
Qualcomm said “Prior reviews have concluded that the synergies provided by our business model create more value for stockholders than could be created through alternative corporate structures. We will continue to evaluate opportunities to enhance stockholder value and are committed to pursuing the right course of action for all of our stockholders.”
Qualcomm also noted it: “welcomes input from our stockholders, including JANA Partners, and we are firmly committed to maintaining an active dialogue with all stockholders and to acting in their best interests.”
JANA Partners specializes in event-driven investing, and identifies undervalued companies that have one or more specific catalysts to unlock value. They believe in becoming an actively engaged shareholder under certain circumstances, and that is the case regarding Qualcomm.
JANA Partners has purchased a stake of more than $2 billion of Qualcomm, making it one of Qualcomm’s largest shareholders, according to the Journal.
JANA Partners is asking Qualcomm to consider spinning off its chip unit from its patent-licensing business, which accounts for most of the company’s profit, according to a quarterly letter reviewed by the Journal, JANA is also calling for the company to cut costs, accelerate stock buybacks and make changes to its executive-pay structure.
However, Qualcomm has been giving back to its shareholders, as evidenced by a $15 billion stock buyback announced in March. Last week, Qualcomm also announced a quarterly cash dividend of $0.48 per common share. This new dividend rate represents a 14% increase above the prior quarterly dividend.
In addition, Qualcomm said it plans to repurchase $10 billion of common stock within one year in addition to its current capital return commitments. Since inception, the company said it has exceeded its minimum capital return target of 75% of free cash flow.
Deepon Nag, an equity analyst at Macquarie said: "JANA Partners is not asking the company to break up now, but is on the table. If they go ahead and break up the company, will that change anything; can Qualcomm leverage its assets and break into new markets.”
The company has currently been looking into breaking into new areas, including the home, automobile and server markets, according to Nag.
“Qualcomm has been pretty much a one market company, as the leader in 4G technology connected to the smart phone market,” noted Nag. “They were the first ones there, and that drove huge demand. But that has now changed as the market is getting more saturated with the likes of Intel (NASDAQ: INTC), Samsung and Taiwan’s Mediatech, among others.”
Qualcomm shares have dipped over 7% this year. Today Bank of America Merrill Lynch (NYSE:BAC) raised the shares to a buy on the bulk of the bad news is priced into the stock. The firm says the shares can reach the $80 level.
A request for comment to JANA Partners was not immediately returned at the time publishing.