Qualcomm has rejected a call for its break-up, adding to Wall Street expectations that there was unlikely to be a quick result to the latest assault by an activist investor on a leading technology company.
An early 4 per cent share price rally in Qualcomm on Monday had fizzled by midday, as investors weighed a push by hedge fund Jana Partners that the chipmaker take action to boost shareholder value.
Qualcomm signalled that it was unlikely to consider a significant corporate restructuring. "Prior reviews have concluded that the synergies provided by our business model create more value for stockholders than could be created through alternative corporate structures," it said, though it promised to look at ways to boost its share price.
Jana, which said it had taken a $2bn stake in the company, had argued that steps the company should consider included separating its chip business from the patent licensing arm that accounts for two-thirds of earnings.
In a letter to its investors released on Monday, it added that a break-up would make it easier for Qualcomm to become involved in the spate of mergers and acquisitions in the chip sector, perhaps even involving a deal with rival Intel.
But Barry Rosenstein, a founder of Jana, speaking at the Active Passive Investor Summit in New York, stopped short of demanding the company split in two. Instead, he challenged Qualcomm to explain why it would not do so.
"We think there are a lot of levers to pull," he said. "The value attributed to the chip business should not be negative."
Qualcomm has appeased investors with the recent announcement of a $15bn stock buyback, adding to the substantial amounts of cash it has already returned to investors in previous years. Jana applauded the buyback as a "great start", though it also argued that the cash return should be accelerated.
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>Derek Aberle, Qualcomm's president, told the Financial Times last month that the company would have acted sooner to return more cash to shareholders if it had not been for the uncertainty caused by an antitrust investigation in China. The investigation was settled two months ago after Qualcomm agreed to reduced royalties for licensing its technology in China and pay a $975m fine.
Mr Rosenstein and Steven Mollenkopf, Qualcomm chief executive, have met twice since the Jana began building its take last autumn, according to a person familiar with the talks.
The activist's menu of proposals include a new cost cutting programme, changes to management's compensation scheme to emphasise earnings per share over revenue growth, and the introduction of new board members.
Other tech companies that have been under pressure from activists with proposals for break-ups, include security company Symantec, which is currently considering a sale of its Veritas division, and eBay, which announced a spin-off of PayPal after initially rejecting the idea when it was promoted by Carl Icahn.
Qualcomm pursued a spin-off of its chip set division soon after the peak of the tech bubble in 2000, but called it off a year later after concluding that it would not do anything to help either of its two businesses perform better.
With $11bn in assets under management, Jana is one of the largest and most vigorous activist funds, and Qualcomm is the biggest position it has ever taken.
Additional reporting by Leslie Hook
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