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Jana Partners Pressures Qualcomm to Split Up

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Jana Partners pressures Qualcomm to change its corporate structure

Activist hedge fund Jana Partners has suggested that Qualcomm (QCOM) change its corporate structure and take other steps to boost shareholder value, according to an April 13 report from the Wall Street Journal. Jana Partners is one of the largest stakeholders in Qualcomm, with a $2 billion stake, and it’s urging Qualcomm to think about a possible split of the company. Some of the other steps that it has asked Qualcomm to make include cutting costs and further accelerating its share buyback program.

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Qualcomm operates two main businesses: chipsets and licensing. These two businesses have followed different growth paths over the last few quarters. As the chart below shows, Qualcomm’s chipsets business has maintained its average revenue growth rate of about 10% in the last five quarters. However, its licensing business has suffered over the last few quarters with negative revenue growth rates.

The main reason for the decline in the company’s licensing business is a the issues that it has to face in China (FXI). China is an important market for Qualcomm, and the company’s generates about half of its revenues from China.

Separation could unlock value for Qualcomm

If we consider the above discussion on Qualcomm’s chipsets and licensing business following different growth trajectories, then we can see that Jana Partners is right in urging Qualcomm to split up. Separate companies could unlock value, which is the main reason why eBay (EBAY) decided to spin off PayPal last year. Similarly, HP (HPQ) also decided to break the company into two separate publicly traded companiesHP Computer and HP Enterprise. More recently, Symantec (SYMC) has explored the sale of its data storage business, Veritas. Last year, Symantec also planned to split the company in two.

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