Qualcomm aims to take advantage of wireless chip consolidation
Company offers strong Q2 forecast, but denies interest in making a play for ARM.
Published: 5 March, 2010
READ MORE: M&A | Qualcomm | Semiconductor
Qualcomm is playing a clever game of managing expectations, disappointing the markets recently with a cautious outlook at its quarterly results call, but now stating that its actual second quarter figures will be at the high end of the range. And as the wireless chip sector gears up for further consolidation, the firm expects to use its weight to accelerate that process and gain market share.
CEO Paul Jacobs told an investor conference. "Consolidation will happen or people will leave the market. We're trying to make that happen sooner." But he quashed any speculation that Qualcomm could bid for ARM Holdings, whose processor designs it licenses. With ARM technology present in the vast majority of cellphones, ownership would give Qualcomm control of the dominant platform, but would create a difficult balancing act between the vendor and the rivals that also use ARM processor cores. "Why?" was Jacobs' response to a question about ARM, as reported by Dow Jones.
But his reply might be different if a competitor triggered a takeover bid, something that certain analysts have been expecting since last fall. One of those is Didier Scemama ofABN AMRO Bank, who speculated in an October research note that ARM could be taken over by its key licensees - including Qualcomm, Broadcom, Marvell, Texas Instruments and Freescale. Another option that has been discussed in ARM circles is the creation of a non-profit foundation, somewhat like Symbian when it was owned by a group of handset makers (before being bought by Nokia and then put into open source). At least, Scemama said, the key customers might take a blocking holding, to prevent the firm falling into the hands of a single private equity investor or one chip player.
The latter option would almost certainly be self-destructive, since the success of ARM's fight against Intel's Atom will rest largely on being multivendor and so achieving huge market share, while presenting no direct competitive threat to the licensees. Jacobs is of this view, saying that competition is good for Qualcomm because it forces the company to keep innovating.
On the results side, Qualcomm predicted that its second quarter profit and revenue would be at the high end of estimates, though the investor meeting saw continuing shareholder frustration with the relatively low value of the stock. According to the San Diego Union-Tribune, Qualcomm's home newspaper, one shareholder said: "In 2001, the stock was $45, and today it's $37. With the kind of company Qualcomm is, this stock should be a lot higher than $37. It is astounding to me."
Jacobs also expressed surprise, and commented: "The only thing we can do is continue to return value to shareholders through dividends and share buybacks, and continue to drive the business forward. But we share your frustration." The chip giant had announced a $3bn share buyback plan and said it would raise its quarterly dividend.
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