Qualcomm Inc. indicated last week it is considering spinning off most of its international assets in part to boost the company’s earnings in future quarters.
The San Diego-based company wants to transfer some of its investments in terrestrial-based wireless telecommunications operating companies into a wholly owned subsidiary of Qualcomm, followed by a spin-off of the subsidiary to its stockholders. Qualcomm would keep up to 20 percent of the new company’s shares after the spin-off.
Dan Pegg, vice president of public affairs with Qualcomm, said the company is considering spinning off its interests in operating companies in Mexico-where its consortium recently won personal communications services licenses in all nine service regions-Chile, Russia and the Ukraine.
The company’s strategy has been to enter into strategic alliances with domestic and international emerging wireless telecom operating companies in order to expand Code Division Multiple Access technology worldwide. But these alliances often have required the company to invest substantial equity in the operating company as well as a commitment from the operating company to purchase cdmaOne equipment from Qualcomm.
The company believes spinning these assets off will positively impact shareholders and its earnings. Without the spinoff, Qualcomm would continue to recognize startup operating losses associated with some of the operating companies and would be limited in its ability to recognize revenues from equipment sales to some of these companies. The investments also create potential conflicts with other Qualcomm customers that compete against these operating companies. Qualcomm also believes the value of its operating-company investments are not fully recognized in its current stock price. Qualcomm stock closed Wednesday at $53.75
In support of the spin-off, Qualcomm said it will make a substantial funding commitment, including an upfront cash contribution and financing in the form of lines of credit. The distribution of the new company’s shares may be a taxable dividend to Qualcomm’s stockholders. If taxable, Qualcomm said the dividend would equal the lower of either the average price per share of the new company’s stock on the first day of trading following consummation of the transaction, or the company’s accumulated earnings and profits through the end of fiscal 1998.
Qualcomm said Harvey White, Qualcomm’s president and member of the board of directors, would resign these positions and serve as chairman, president and chief executive officer of the new company. Richard Sulpizio, Qualcomm’s current chief operating officer and executive vice president, would become president of Qualcomm.
