Qualcomm has confirmed reports that it is eliminating roughly 600 jobs. The chip giant says that some of those impacted will be offered new opportunities elsewhere at the company. Fewer than half the employees affected are based in the United States.
“Less than 300 will be impacted in California and a similar number of employees are impacted outside the US,” said a company spokesperson. “We regularly evaluate our businesses to determine where efficiencies can be obtained and priorities addressed. On occasion, that requires we adjust the size or skill mix of our work teams in order to shrink or eliminate some projects and start and grow new projects.”
Analysts who follow the chip giant said it is under pressure on several fronts. Asian rivals are undercutting its chip prices and licensing intellectual property that competes with its patents.
“Patent royalties will continue to drop,” said Will Strauss of Forward Concepts. “Qualcomm’s patent revenue will diminish as CDMA and W-CDMA (where they had strong patent positions) become displaced by LTE. Although Qualcomm is the clear leader in LTE chips, their patent position is not as strong, since even Huawei and ZTE claim significant [intellectual property] for LTE.”
Chip sales represent an even bigger revenue source than patents for Qualcomm, and chip prices are under pressure. Taiwan’s MediaTek is making LTE modems and processors that are significantly less expensive than Qualcomm’s, enabling Chinese manufacturers to make high-end Android smartphones for as little as $40 each. Qualcomm has a large team working on reference designs in China, but the company is learning that the most important way to compete in China may be on price.
“They are already cutting prices of their LTE chips to take market share from MediaTek,” said analyst Linley Gwennap of The Linley Group. “Their [average selling price] for the most recent quarter fell by $1.48 from the previous quarter, and it is likely to fall again this quarter by as much as $1.”
Investors are taking note. After doubling between 2010 and 2014, Qualcomm’s stock price started to deteriorate this year. In addition to lower chip prices and competition on the IP licensing front, Qualcomm faces a slowdown in the smartphone market.
“Growth in the smartphone market will be less than 20% this year, compared with 35% last year, so the slowdown is putting additional pressure on Qualcomm. The company is seeking growth in new markets such as servers, but that will take time to develop,” said Gwennap.
Qualcomm is also working hard to supply chips and software for other connected devices. The company’s comprehensive “Internet of Everything” initiative includes an open source software platform called AllJoyn, designed to facilitate communication between various connected devices.
The Mobile Minute is sponsored by Juniper Networks.
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