Qualcomm Incorporated (NASDAQ: QCOM) today announced it has initiated a Strategic Realignment Plan designed to improve execution, enhance financial performance and drive profitable growth as the Company works to create sustainable long-term value for stockholders. The Company also announced that it has entered into an agreement with JANA Partners pursuant to which Mark McLaughlin and Tony Vinciquerra have been added to the Board of Directors and a third director to be selected by the Company and consented to by JANA will be added promptly.
The core elements of the new plan include:
- Aggressively right-sizing the cost structure by eliminating approximately $1.4 billion inspending, including an approximately $300 million reduction in annual share-basedcompensation grants; Company expects to achieve this run-rate by the end of fiscal year2016
- Reviewing alternatives to the Company’s corporate and financial structure
- Reaffirming the Company’s plan to return significant capital to stockholders
- Adding new Directors with complementary skills while reducing the average tenure of theBoard of Directors
- Further aligning executive compensation with performance, including returns oninvestment
- Disciplined investment in areas that further Qualcomm’s leadership positions, build uponthe Company’s core technologies and capabilities and offer attractive growth opportunitiesand returns
“We are making fundamental changes to position Qualcomm for improved execution, financial and operating performance,” said Steve Mollenkopf, CEO of Qualcomm Incorporated. “We are right-sizing our cost structure and focusing our investments around the highest return opportunities while reaffirming our intent to return significant capital to stockholders and refreshing our Board of Directors. Importantly, our Strategic Realignment Plan is designed to drive meaningful change in the near term – without jeopardizing our ability to retain and build upon our technology leadership position and create long-term value for our stockholders.”
Barry Rosenstein, managing partner of JANA Partners, commented, “We support the bold steps the Board and management are pursuing to enhance stockholder value and are pleased to have worked constructively with them in this endeavor.”
The details of the Qualcomm Strategic Realignment Plan are as follows:
1.Aggressively right-sizing the cost structure to deliver profitable growth. Qualcomm isimplementing a comprehensive cost reduction action to reduce annual costs from itsfiscal 2015 levels of $7.3 billion (adjusted for variable compensation) by approximately$1.1 billion through a series of targeted reductions that will not jeopardize theCompany’s growth objectives or core technology roadmap. These cost initiatives includereductions in headcount and temporary workforce, streamlining the engineeringorganization, reducing the number of offices and increasing the mix of resources inlower-cost regions. The Company is also reducing annual share-based compensationgrants by approximately $300 million. While these specific cost initiatives are expectedto be fully implemented by the end of fiscal year 2016, the Company will continue toexamine its cost structure for additional efficiencies that enhance profitability withoutsacrificing its future growth potential.
2.Initiating new review of financial and structural alternatives available to createstockholder value. In light of recent industry developments and other elements of theStrategic Realignment Plan, Qualcomm’s Board and management, with the assistance ofoutside financial advisors, are conducting a review of the Company’s corporate structure(including possible business separation alternatives), capital return opportunities andother potential strategic and financial alternatives available to the Company to createstockholder value. The Company does not expect to publicly comment on this reviewprior to its completion, which is expected to occur by the end of the calendar year.
3.Reaffirming intent to return significant capital to stockholders. A strong balance sheetand regulatory resolution in China have provided Qualcomm the flexibility tosignificantly increase its capital returns to stockholders and execute the largest capitalreturns program in Company history. Qualcomm is committed to continuing to return aminimum of 75% of free cash flow to stockholders through dividends and repurchasesgoing forward, in addition to the previously announced $10 billion stock repurchase program to be completed by March 2016. Changes to the capital return program will be considered as part of the Board and management’s review of financial and structural alternatives.
4.Adding new Directors with complementary skill sets while reducing the average tenureof the Board of Directors. Mark McLaughlin and Tony Vinciquerra have been added tothe Board and the Company plans to appoint one additional independent director. Thesedirectors bring skills and perspectives that will be helpful to the Company as itimplements its Strategic Realignment Plan. The Company is also reducing the averagetenure of the Board of Directors. General Brent Scowcroft and Duane Nelles have retiredfrom the Board. Sir Donald Cruickshank had previously informed the Company that hewill not stand for re-election to the Board in 2016. Raymond Dittamore has advised theCompany that, assuming he is re-elected to the Board at the Company’s 2016 AnnualMeeting of Stockholders, he does not intend to stand for re-election in 2017.
5.Further aligning executive compensation with performance and stockholder returnobjectives. The Board plans to change Qualcomm’s executive compensation program byadding an additional returns-based metric for performance-based equity awards andtaking share-based compensation provided to the Company’s executives and otheremployees into account when calculating earnings per share for use in determiningexecutives’ annual cash bonuses.
6.Disciplined investment to further leadership positions and drive growth while deliveringattractive returns. The Company intends to focus its investments in technologies thatscale across core smartphone and adjacent growth opportunities, such as in its leadingmodem and other differentiated technologies. Qualcomm is reducing its investmentsoutside of QTL and QCT and will focus these investments around the highest-returnopportunities, including data centers, small cells and certain IoE verticals.
“Qualcomm has been and will continue to be the industry leader in mobile technologies,” said Mr. Mollenkopf. “We have tremendous advantages and IP leadership, and we are very well positioned to capitalize on the significant long-term opportunities before us as mobile computing dramatically expands beyond the smartphone. The actions we are taking today are designed to ensure that we are properly structured to seize these opportunities while delivering improved near-term performance. I have great confidence in our employees and our ability to implement this new plan and I look forward to providing our stockholders with quarterly updates on our progress.”
“On behalf of the Company and the entire Qualcomm Board, I want to sincerely thank Brent and Duane for their dedication to the Company, service to stockholders and substantial contributions to the growth and success of Qualcomm as it has generated significant shareholder returns during their tenure,” said Dr. Paul Jacobs, Executive Chairman of Qualcomm Incorporated. “We welcome Mark and Tony to the Board.” Dr. Jacobs further added, “The comprehensive set of initiatives that we have unveiled today is aimed at enhancing stockholder value and driving growth as we position Qualcomm for continued success in the future.”
In connection with the appointments of Messrs. McLaughlin and Vinciquerra, Qualcomm Incorporated and JANA Partners have entered into a cooperation agreement, which will be filed with the Securities and Exchange Commission by the Company.
The Company will discuss the Strategic Realignment Plan during its fiscal third quarter results conference call today at 1:45pm Pacific Time. The accompanying slides can be found at http://investor.qualcomm.com/results.cfm.