A Qualcomm Break-Up

August 28, 2007 by Douglas A. McIntyre

Barron’s has floated the idea that Qualcomm (QCOM) may want to break itself into two pieces. Almost all of its rivals and its largest customer, Nokia (NOK), are in legal battles with the chip company. And, it has lost key IP legal battles with Broadcom (BRCM) that limit sales of certain of its chips.

Barron’s writes that "in Qualcomm’s case, royalties account for nearly a third of the company’s roughly $9 billion in estimated revenues for calendar year 2007, while chipsets are expected to generate about $5.4 billion and data application technology is pegged to rack up about $800 million in sales."

And, it is licensing that has the IP issues. So, "rid the chipset business of its patent-licensing revenue exposure and divide the company in two, unlocking the value of the chipset business."

The problem with this kind of break-up is clear. Investors may get one strong stock with tremendous growth potential. But, they get one weak stock which, if IP problems are too great, could end up being worth almost nothing. If current stock holders end up selling the wrong one or keeping the wrong one, they may well be worse off than if the company stays together and fights though its problems.

Douglas A. McIntyre