A smart and well-heeled investor pulled hard enough on Qualcomm to help bring down some 4,700 employees.
Capitalism is a funny tug-of-war over money. Some people tug harder than others and get more rope while others fall down and get less.
Jana Partners LLC is the kind of firm that gets called an activist investor. Or call them a hard competitor in tug-of-war. They pull with the weight of $2 billion in investment in Qualcomm.
A letter Jana wrote helped pull Qualcomm executives toward their restructuring plan announced yesterday. When the rope shifted, pink slips started going out to an estimated 4,700 people, many of them engineers who build Qualcomm’s mobile SoCs.
It sounds heartless, and in many ways it is. But there also were some business insights in the letter posted online by TheStreet.com
The letter pointed out Qualcomm missed the mark with its latest Snapdragon smartphone processor. It “was cautious in embracing the transition to both 64-bit architectures and leading edge 14nm process technology...resulting in subsequent market share loss, margin compression, and depressed earnings.”
It implied the moves resulted in Qualcomm losing a design win in Samsung’s Galaxy S6 phone, but I doubt that. I think Samsung want to have its Exynos SoC be the first chip announced in its 14nm process and designed into the S6 as a matter of pride. And as for 64-bit, everyone but Jana knows Apple jumped the gun on that one, way before any user-experience software needed it.
In any case, Qualcomm is recovering, planning to make its next SoC in Samsung’s process, the Jana letter says, and hopefully getting it used in whatever is its S7. We shall see.
If Jana gets its way, Qualcomm will split into a lucrative licensing business and a chip designer much more tightly managed for costs. Jana makes a decent point that Qualcomm’s board has grown long in the tooth and it has let its spending increase in the go-go days of smartphones that now seem to be gone-gone.
That said, it sticks in my craw to see some smart business types horn their way in to feed at the trough filled by the hard work of engineers.
Jana wants to see cuts that makes Qualcomm’s mobile chip business hit 20-22% profit margins. That’s reasonable I suppose, but I think it fails to take into account the high cost of developing the cellular technologies that fill the patent wall at Qualcomm headquarters and keep its licensing business robust. And it does not account for the work needed to make 5G a reality.
Qualcomm broke into the top 10 U.S. patent recipients for the first time in 2014 with 2,103 patents -- a 62% increase over 2012.
I know Jana has been talking with Qualcomm execs for months. I wonder how much, if any, time it has spent talking with the engineers behind the patents that paper its headquarters lobby.
Jana applauds the fact Qualcomm will take $15 billion of its cash and spend it on buying back its stock. The company can’t spend that money fast enough to suit Jana. I am no economic wizard, but it seems to me that’s an awful lot of money not spent on creating any new technology, patents or products – just shareholder value, the stuff that’s on Jana’s side of the tug-of-war.
I suspect Qualcomm management pushed back on Jana. The investor group did not get a seat on the Qualcomm board in the deal, although a private equity specialist did, one likely pulling on Jana’s side of the rope. And Qualcomm refused to cut its emerging small cell and server SoC efforts – good for them.
Barry Rosenstein, founder and managing partner of Jana, praised the restructuring effort in a press release from Qualcomm. I don’t regret anyone being happy, but I hope this particular capitalist is so happy he goes on vacation and leaves the electronics industry alone for a long time.
— Rick Merritt, Silicon Valley Bureau Chief, EE Times