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Qualcomm Talks to Wall Street Amid Major Restructuring

The company plans to cut 15 percent of its workers as part of an effort to take out $1.4 billion in costs.

Asa Mathat

Qualcomm is set to begin a conference call momentarily after announcing a restructuring that will see the company cut $1.4 billion in costs, including up to 15 percent of its workforce, as well as reshape its board and consider a potential split of the company.

The company also slashed its financial outlook for the current quarter amid both restructuring charges as well as continued weakness in its chip business. It’s the third time this year the company has cut its outlook.

Re/code will have live coverage here.

1:50 pm PT: “We are committed to driving meaningful change,” CEO Steve Mollenkopf said as part of his opening remarks on the call. He goes through the six key areas of the company’s restructuring plan — cutting costs, returning more cash to shareholders, reshaping the board, changing the way it pays executives and considering a split of the company — something it has long resisted.

1:52 pm: The company is also cutting its investment outside of its core chip and licensing businesses to the tune of $300 million per year. It will still invest in a few other areas, such as data centers, small cells and a few verticals in the Internet-of-Things space.

Qualcomm will still spend more than $4 billion on research and development, Mollenkopf noted.

“Implementation of the plan has begun,” Mollenkopf said, adding that the company expects to save $600 million in costs in the next fiscal year, with the remainder in the following year.

1:54 pm: Mollenkopf reiterated the 15 percent job cut figure that wasn’t part of the company’s press releases, but was in a slide Qualcomm released ahead of the call.

1:55 pm: “While we are sharply focused on managing costs, we are not sacrificing the future for the present,” Mollenkopf said.

1:57 pm: Talking about the look at a potential split of the company, Mollenkopf said Qualcomm is doing a “fresh review” of its corporate structure, with the assistance of outside financial advisers, which it expects to complete by the end of calendar 2015. The company has in the past considered whether it should, for example, split its chip and licensing businesses and found no reason to do so.

1:58 pm: Qualcomm also plans to do its largest-ever return of capital to shareholders, while keeping enough cash to invest. Roughly 75 percent of free cash flow will go back to shareholders through dividends and buybacks, Mollenkopf said.

2:01 pm: Mollenkopf says the next fiscal year will be a “transition year” but promised continued technology leadership. He notes the company has made it through past transitions, such as its shift from modem maker to a maker of complete mobile processors. “We intend to drive the evolution of 5G next,” he said.

2:03 p.m: Talking about challenges in the chip business, he refers (without naming them) to the strength of Apple and Samsung in the high-end smartphone market, where the two have roughly 85 percent of the market share. Qualcomm ships only a modem in Apple’s phones and has been largely shut out of Samsung’s current high-end devices as the Korean phone maker used its homegrown Exynos processor as well as its own LTE modem.

2:07 pm: Outside of phones, Qualcomm is still eyeing opportunities in the networking, mobile computing, Internet-of-Things and automotive spaces. Those spots already account for $1.6 billion in revenue, Mollenkopf said.

2:10 pm: CFO George Davis, talking about last quarter, notes that some Chinese phone customers are seeing their inventory pile up as they have had trouble selling phones.

2:14 pm: Davis said Qualcomm now expects current quarter revenue of $4.7 billion to $5.7 billion, at the low end of the company’s prior guidance and another sequential drop. Once again, the company blames struggles in the high-end chip business. The low-end business is shaping up as expected, Davis said.

2:18 pm: On to Q&A. Guessing there will be a lot of Qs.

2:20 pm: First question is whether costs will come in evenly and also whether any specific projects will be cut in its core business.

Cost savings will come in over time throughout the year, Davis said. Mollenkopf said that the company will shift things around but is still investing. “We’re going to protect our IP (intellectual property) roadmaps,” he said. “We are not going to withdraw from tiers [of the market].”

2:27 pm: Asked about the rationale for and against splitting the company and how things may have changed, Chairman Paul Jacobs said he didn’t want to get into the arguments in order to give the company’s new board members and outside advisers a chance to weigh in.

“There’s really no preconceived notions now,” Jacobs said.

2:32 pm: Qualcomm said it isn’t forecasting an improved situation in the next fiscal year, but analysts are asking why it isn’t expecting that things will get worse. Executives said it is really too soon to say, adding that the company would give its forecast for the next fiscal year in November.

2:35 pm: Asked whether the cost-cutting plan will affect mergers and acquisitions, Mollenkopf said that the company hasn’t changed its philosophy, but added that at the same time management expects to be focused on executing on the restructuring efforts.

2:47 pm: Asked about potential action by European regulators, President Derek Aberle said that the situation is different from the one in China and has less to do with licensing practices and more with how Qualcomm prices its chips and offers rebates to customers.

2:51 pm: Saved by the bell, as the announcer says we are out of time for questions.

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