Pressured by Chinese competitors and domestic investors, Qualcomm has decided to undertake a “strategic realignment” that will include roughly 4,500 layoffs. Qualcomm said it will streamline its engineering operations and consolidate some offices.
The world’s largest maker of chips for mobile devices employs more than 30,000 people worldwide. Late last year, the company announced 600 layoffs, roughly half of which impacted workers at its San Diego headquarters.
The chipmaker said it wants to cut annual costs by $1.1 billion. Fiscal 2015 spending is budgeted at $7.3 billion, and Qualcomm said it expects to implement the $1.1 billion in cuts by September 2016, the end of its fiscal 2016.
Qualcomm also said it will eliminate approximately $300 million in annual share-based compensation grants and that it will “further align executive compensation with performance, including returns on investment.”
Qualcomm continues to be a leader in research and development around next-generation wireless technologies. In announcing the cost cuts, CEO Steve Mollenkopf made it clear that Qualcomm’s research initiatives will not come to a halt.
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“We are not sacrificing the future for the present,” said Mollenkopf. “We are taking a highly disciplined approach to our investments. We will invest in areas where we can apply our existing technology, such as small cells, and areas that are natural extensions of our capabilities, such as data centers.”
For several months, Qualcomm has been under pressure from hedge fund Jana Partners. The activist investor has asked Qualcomm to consider spinning off its chip business from its more profitable patent licensing business. The company holds many key wireless patents, and already operates its patent licensing business as a separate unit. Qualcomm has repeatedly insisted that synergies between the two units argue for keeping them together, but in response to the hedge fund’s persistent pressure Qualcomm has agreed to add a new board member who will be blessed by Jana Partners. That person has not yet been identified.
Qualcomm’s fiscal third-quarter earnings, also announced yesterday, illustrate the negative impact that low-cost competitors and a maturing smartphone market are having on the company. Revenue ($5.8 billion) was down 14% year-on-year and operating income ($1.2 billion) was down 40%.
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