After months of denying any plans to sell its wireless handset division, Qualcomm Inc. is publicly relenting to the pressures of severe competition from Asia and the likes of Nokia Mobile Phones and Motorola Inc.
“With increased competition, parts shortages and industry consolidation reducing margins in consumer products, Qualcomm desires to transition the business to a manufacturer that will support its customer base and employees while providing economies of scale, a strong purchasing base and other operating efficiencies,” Qualcomm said in a statement. “Discussions are under way with a number of companies that have expressed interest.”
Qualcomm’s announcement came after the company’s stock, which has skyrocketed since it reached an agreement on third-generation technology with L.M. Ericsson six months ago, took a tumble as some analysts feared the company’s Code Division Multiple Access handset business would drag Qualcomm’s fourth-quarter results.
RCR reported in January that Qualcomm was ready to sell off its handset division and was in discussions with Siemens AG. Sources close to the situation, however, indicate a deal with Motorola may be imminent. Motorola declined to comment, but such a deal would give the company access to engineers it aggressively is seeking. Ericsson, which purchased the company’s struggling infrastructure division in March, indicated in published reports that it isn’t interested in Qualcomm’s handset division.
For Siemens, an acquisition would bring the company back into the North American market it desperately wants a piece of on the infrastructure and handset side. Siemens spokeswoman Kristine Ryan said she is not aware of any business deal in the works.
“Siemens is still evaluating various scenarios to come back into the North American wireless market,” said Ryan.
Handset prices are falling faster per annum than during the last several quarters, analysts note, and component shortages have threatened to further limit revenue growth into 2000. Industry watchers say the digital handset market has become more scale-driven, requiring shorter product cycles and increased marketing costs. Other vendors have a greater market presence and deeper pockets than Qualcomm. Handset vendors like Sony Corp., Oki Telecom and Siemens bowed out of the U.S. handset market, unable to keep their cost structures intact as handset prices fall.
Qualcomm said it hopes to sign an agreement with a buyer before the end of the year. In the meantime, it plans to take steps to improve its margins. This may result in a nonrecurring charge to earnings. Qualcomm said it also is re-assigning personnel from its consumer products division to work in its successful Applications Specific Integrated Circuits sector.
Qualcomm said its fourth-quarter fiscal earnings will meet or exceed Wall Street’s estimate of 87 cents per share on increased cdmaOne royalties.
Analysts have indicated Qualcomm would earn more as a royalty and ASICs company. Royalties have increased quarter-over-quarter, while Qualcomm retains a wide lead over its competitors in ASICs. The company also owns OmniTracs and has an ownership in mobile satellite company GlobalStar L.L.P.
