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Why Qualcomm Spin-off is Trickier Than it Seems

Majeed Ahmad

New member
Jana Partners LLC is asking Qualcomm to consider spinning off its chip unit from itspatent-licensing business, according to a report from The Wall Street Journal. Jana is one of Qualcomm’s largest shareholders with a stake worth of more than $2 billion. The report also quotes analysts at Arete Research Services LLP regarding the worth of Qualcomm’s chip business having a market valuation of $74 billion while its patent business has been valued at $87 billion.

The report notes that Qualcomm initiated the process of breaking up the company in 2000 to reduce conflicts in situations where the company sought to licensepatents to hardware rivals. In retrospect, that call made Qualcomm the largest maker of mobile chips for devices like smartphones and tablets.

At that time, GSM was the predominant mobile standard, and TI had mastered silicon for GSM products via its close ties with Nokia and Ericsson. However, when the mobile industry entered the unchartered waters of 3G wireless, Qualcomm had most of the IP for this new technology. Qualcomm had mastered GSM's lesser successful rival CDMA and now 3G wireless was all about CDMA technology, whether European W-CDMA standard or the U.S. cdma2000 specification.

Qualcomm outperformed TI and other chip vendors in 3G era and then successfully extended that lead to the LTE-based 4G landscape using its wealth of IP that its patent business effectively controls. Jana's call for a chip business spin-off may well be a knee-jerk reaction of Qualcomm's recent patent spat with authorities in China. However, China has always been a tricky ground for the royalty business and that alone can't justify a spin-off.

So, in all likeliness, Jana's call for divesting Qualcomm into two companies might not go far. Qualcomm is still on the top of LTE world and it might not be a good time to spoil the 4G party.
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