Last year hedge fund Jana Partners pushed Qualcomm management for a strategic review of its business after investing almost $2 billion dollars in the company. Among the items promoted by Jana partners was the idea to partially or completely split Qualcomm’s chipset (QCT) and technology licensing (QTL) businesses. After several months of strategic review management decided that keeping the two segments within the same company was the best way forward. After giving such public advice to Qualcomm’s management team and helping drive that strategic review, Jana has since significantly decreased its investment in the company.
At the time the strategic review was announced IHS concluded that a split was not in the best interest of the company. Extremely high margins of the QTL segment help feed the R&D requirements of QCT which in turn provides an ideal channel for continual technology development especially given QCT’s ability to leverage customer relationships and feedback in order to generate innovative chipset technology and the potential for future licensing opportunities. While QTL is resolving disputes with major OEMs such as LG and continuing to make progress signing licensing agreements with Chinese OEMs under the terms that were agreed upon with the National Development and Reform Commission (NDRC) last year, QCT is focusing on maintaining its lead in modem technology with products like the Snapdragon X16. This modem announced back in February is capable of providing gigabit speeds and is the first commercially announced LTE Advanced Pro chipset.
The non-captive mobile handset IC supplier market as a whole faced a challenging year in 2015 amongst a backdrop of an increasingly competitive supplier landscape, maturing smartphone market, and vertical integration and second source strategies taking place at smartphone OEMs. Despite these challenges, core mobile handset IC revenue still managed to rise over 2% compared to the previous year, driven largely by segments other than digital baseband. This growth rate is significantly slower compared to annual market growth rates since 2009 and given the aforementioned challenges persist, the current year could be equally or even more challenging for the non-captive mobile handset IC market.
The operational and strategic synergies created by Qualcomm’s business structure are important for it to maintain or grow its share of the overall wireless semiconductor market. However, competition from other third party suppliers and vertically integrated OEM customers is shaping the company’s handset IC market share. How has it changed and what actions can Qualcomm take to defend its dominant position?
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