Qualcomm CEO Steve Mollenkopf Faces Fights on Many Fronts
March 19 2018 - 07:29AM
Dow Jones News
By Ted Greenwald
For some chief executives, fending off an unwanted takeover is a
chance to declare victory. For Qualcomm Inc. CEO Steve Mollenkopf,
the end of one fight has only left him facing several others.
Mr. Mollenkopf not only has to fix disputes with customers that
predate Broadcom Ltd.'s hostile bid, he now also has to assuage
shareholders unhappy with how Qualcomm handled the four-month
takeover battle. On top of that, former Qualcomm Executive Chairman
Paul Jacobs has embarked on his own takeover bid that, while a long
shot, could trigger new tumult.
Qualcomm's plan, as pitched to investors during the Broadcom
fight, hinges on several hard-to-predict pieces falling into place
over the next year.
The company promises to deliver adjusted earnings of between
$6.75 and $7.50 a share in fiscal 2019 -- roughly double Wall
Street's current estimate of $3.76 for that period, according to
FactSet. That is premised on Qualcomm's completing its slow-moving
purchase of Dutch chip maker NXP Semiconductors NV and settling its
patent-royalty disputes with Apple Inc. and Huawei Technologies
Co., among other things.
If investors believe Qualcomm can meet its goals for next year,
it would make the stock worth $85 to $90 a share today, discounting
for the risk of failure, said Mike Walkley, an analyst at Canaccord
Genuity Group Inc.
Shareholders are showing doubt: Qualcomm's stock ended Friday at
$60.62 a share, down 3.5% from before President Donald Trump
blocked Broadcom's proposed deal last Monday and far below the $79
that Broadcom was offering.
"I was hoping a deal would go through, and Qualcomm would become
Broadcom's problem," said Tom Herzig of investment firm P.R. Herzig
& Co. "Now it seems to be my problem." Mr. Herzig's firm has
about 2.5% of its portfolio in Qualcomm stock, which he said he
plans to hold despite his concerns over whether management
eventually can reignite the shares.
Shareholders will get another chance to register their opinion
on Friday, at Qualcomm's annual meeting. Institutional Shareholder
Services Inc., an advisory service that had urged shareholders to
push for negotiations between the two companies, on Wednesday
recommended that Qualcomm shareholders show their discontent by
voting for four of Broadcom's candidates -- even though such votes
won't be counted -- and none of the incumbents.
A possible bid from Mr. Jacobs, who was Mr. Mollenkopf's
predecessor as CEO and is the son of Qualcomm co-founder and former
leader Irwin Jacobs, further clouds the situation.
"There are real opportunities to accelerate Qualcomm's
innovation success and strengthen its position in the global
marketplace," Paul Jacobs said in a statement Friday. He said
taking the company private makes sense because taking advantage of
the opportunities is "challenging as a stand-alone public
company."
The buyout suggestion, widely seen as having little chance of
success, stirred discord on the board, which on Friday said Mr.
Jacobs wouldn't be renominated as a director at this week's
shareholder meeting.
Qualcomm declined to comment or to make Mr. Mollenkopf
available. The company said in a statement Friday that it is
"focused on executing its business plan and maximizing value for
shareholders as an independent company."
An understated engineer who joined Qualcomm more than two
decades ago, Mr. Mollenkopf, 49 years old, has presided over a
difficult period. Qualcomm has battled not only with some of its
biggest customers but also with regulators around the world,
including the U.S. Federal Trade Commission, which sued it last
year alleging anticompetitive practices. Apple and Huawei have been
withholding revenue, which crimped Qualcomm's profit last year, and
its shares are down 18% since Mr. Mollenkopf became CEO four years
ago.
Mr. Mollenkopf is counting on NXP to supercharge Qualcomm's
ability to sell chips for cars, security and internet-connected
devices -- combined markets he has said could be worth $77 billion
by 2020. He has said he expects Qualcomm's leadership in
next-generation cellular technology to be a big advantage in those
areas.
Qualcomm initially expected the $44 billion transaction,
announced in late 2016, to close by the end of 2017. But the deal
has been held up in antitrust review in China, and its prospects
for approval have been clouded by rising trade tensions with the
U.S. -- and potentially by the Trump administration's treatment of
Qualcomm as a sort of national champion in the U.S.'s competition
with China.
Also critical for Mr. Mollenkopf is settling the disputes with
Apple and Huawei in a way that doesn't hobble Qualcomm's highly
profitable intellectual-property licensing business, which collects
royalties on nearly every smartphone sold because it holds key
patents on cellular technology.
Qualcomm's 2019 forecast includes between $2.5 billion and $4
billion in payments it assumes would flow from resolving its
customer disputes. It leaves out a further $5 billion to $7 billion
in so-called catch-up payments that Qualcomm has said Apple and
Huawei will owe by then for royalties they have withheld.
Qualcomm has said it is confident it can resolve the disputes.
It is making headway with Huawei, which also stopped paying
royalties. In January, it announced a patent-licensing agreement
with Samsung Electronics Co. that strengthens its position against
Apple, some patent lawyers said.
Write to Ted Greenwald at Ted.Greenwald@wsj.com
(END) Dow Jones Newswires
March 19, 2018 07:14 ET (11:14 GMT)
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