Barry Rosenstein of JANA Partners may be winning in his quest to unlock value at QUALCOMM, Inc. (NASDAQ:QCOM), as the chip giant is reportedly on the verge of conducting a strategic review of its business which may push the company to break up into two separate firms. According to The Wall Street Journal citing unnamed “people familiar with the matter,” QUALCOMM is “expected to conduct a sweeping strategic review that will look at the possibility of a breakup, among other options”. The plans for a breakup may be announced as soon as the announcement of the fiscal third quarter results of the firm on Wednesday, the publication notes. Nonetheless, the very same sources caution that the plans of QUALCOMM, Inc. (NASDAQ:QCOM) are not yet finalized so there may not be any breakup announcements on Wednesday. Rumors of a possible break-up of the chip-making business and technology licensing arms of QUALCOMM have been heard ever since JANA Partners disclosed a nearly $2 billion stake in the technology firm in April.
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JANA sent a letter to its investors in April saying that it had proposed changes to QUALCOMM including reducing corporate costs, strategic mergers and acquisitions, and the modification of corporate governance, all of which could help the firm improve on its earnings misses and underperformance compared to its peers. The $17-billion JANA Partners hedge fund estimates that excluding $30 billion in cash, QUALCOMM, Inc. (NASDAQ:QCOM) trades at just 9x earnings. At this multiple, the hedge fund said that the chip-making business of the firm, called Qualcomm CDMA Technologies (QCT) is essentially valued at nothing. QUALCOMM was informed it could realize value for its QCT arm by either spinning it and Qualcomm Technology Licensing (QTL), its technology licensing arm, into two separate businesses, or by combining them.
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Other changes proposed by JANA to QUALCOMM include the acceleration of share buybacks. The technology firm has a $15 billion share buyback program announced in March, including $10 billion earmarked for this year. JANA believes this is a good first step, particularly in reviving the company’s lagging stock, which has fallen by 13.87% year-to-date. Over the past 12 months, the stock is down by 18.9%. In April, QUALCOMM reported a 46% drop in profits for its second quarter.
The success JANA Partners will have with QUALCOMM, Inc. (NASDAQ:QCOM) if it does decide to either break-up or consolidate its different business units comes after JANA Partners’ successful activist run with ConAgra Foods Inc (NYSE:CAG). ConAgra has confirmed that it intends to divest its Ralcorp acquisition, exiting its flop of an entry into the private label food business. JANA Partners pushed hard for this exit as well as an expansion of ConAgra’s board, which it got in the form of two new board seats.
It should be noted, however, that should QUALCOMM split its QCT and QTL units, the move goes against the general consolidation in the semiconductor industry this year. The Wall Street Journal notes that NXP Semiconductors NV (NASDAQ:NXPI) inked an $11.8-billion deal to buy Freescale Semiconductor Ltd (NYSE:FSL) in March. Avago Technologies Ltd (NASDAQ:AVGO) agreed to buy Broadcom Corporation (NASDAQ:BRCM) for $37 billion in May, and Intel Corporation (NASDAQ:INTC) confirmed in June that it will buy Altera Corporation (NASDAQ:ALTR) for $16.7 billion. According to the publication, analysts at Arete Research Services LLP estimate QUALCOMM’s QCT business to be valued at about $74 billion, while the QTL business is worth $87 billion.
Among the funds tracked by Insider Monkey, 64 held long positions in QUALCOMM by March 31, up from 61 at the end of the previous quarter. More importantly, the aggregate value of the holdings of those funds who held long stakes in the chipmaker by the end of the first quarter jumped by 55.40% compared to the previous quarter, to $6.81 billion. This is a massive jump considering the stock actually declined in value by 6.71% from January 2 to March 31. The massive jump in holdings is largely because of the involvement of JANA partners, which bought about 28.54 million shares of QUALCOMM in the first quarter. The stake was valued at about $1.98 billion and makes up a considerable 11.48% of JANA Partners’ entire portfolio. Orbis Investment Management, led by William B. Gray, held the second-largest holding in QUALCOMM in our database on March 31, valued at $773.8 million held in about 11.16 million shares. Of note is Steve Cohen‘s Point72 Asset Management, which also initiated a $106.6 million position during the first quarter, buying 1.54 million shares.
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