Qualcomm Signals More Appetite for Mergers and Acquisitions

  • Chipmaker stood on sidelines amid record dealmaking in 2015
  • Qualcomm has about $30 billion in cash and equivalents

Qualcomm Inc., the largest maker of chips for mobile phones, said it’s ready to spend more money to buy other companies and technologies that will strengthen its position in smartphones and speed its entry into new markets.

“We maintain our balance sheet so that we can take advantage of the environment in the industry today,” Chief Executive Officer Steve Mollenkopf said in a presentation to investors at the company’s San Diego headquarters on Thursday. “It’s consolidating and we think there are opportunities to participate in certain markets that are rationalizing.”

Qualcomm largely sat on the sidelines in 2015 as other chipmakers acquired each other, making it the biggest year ever for industry consolidation. The mobile chipmaker ended its latest quarter with about $30 billion in cash and equivalents, and has focused on buying back stock and other measures to placate shareholders as its earnings growth stalled.

Mollenkopf is trying to reverse sales declines that have reduced Qualcomm’s annual revenue by more than 10 percent. He’s facing more competition in the slowing smartphone market, while governments and some customers are challenging how the company charges royalties on technology used in all modern high-speed data-capable phones.

Qualcomm shares, which fell 33 percent in 2015, were little changed at $43 at the close of trading in New York, after recovering from a low of $42.24 earlier on Thursday.

New Markets

Mollenkopf is responding to the challenges by pushing Qualcomm’s technology into new industries such as servers, cars and medical devices to ramp up sales and get more of a return on spending on research and development. Those new areas will expand the available market for Qualcomm’s chips to about $100 billion by 2020, up from less than $30 billion today, the company said.

Separately, Qualcomm announced the X16 modem, the first chip that will be capable of handling 1 gigabit speeds on mobile devices, which is faster than what the majority of people in the U.S. get from their wired connections at home. The company is also offering a new chip for wearable devices.

Last year was the first year that the smartphone market came close to expanding by less than 10 percent, according to researcher IDC. Shipments rose 10.1 percent in 2015 to 1.43 billion units. While there’s some weakness in demand for the most expensive smartphones, sales in emerging markets and China have remained relatively robust, Qualcomm said. Market expectations for smartphone demand are probably too pessimistic, said Derek Aberle, Qualcomm’s president.

Getting Paid

Qualcomm is unique among semiconductor makers in that it gets most its profit from licensing patents. Makers of phones pay the company royalties, whether or not they use its chips. That lucrative profit pool has come under attack as governments around the world scrutinize Qualcomm’s business practices. Some Chinese manufacturers have used their government’s investigation -- settled last year after the company paid a fine -- of the U.S. company as a reason to hold off on paying all the fees that Qualcomm says it is owed.

The company is making progress in negotiations with Chinese handset makers and is on track to collect fees from about half of manufacturers responsible for a projected $83 billion in China sales this year, Aberle said. Another group, which accounts for about 18 percent, is negotiating with Qualcomm and may pay soon. The rest are still unlicensed or undereporting sales, he said.

Even as the market evolves and Qualcomm’s licensing rate declines, the expansion of its reach to other new markets and resolution of disputes mean that its total revenue from the unit will grow, Aberle said. The company is projected licensing sales of more than $10 billion by 2020, he said.

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