Qualcomm Board Shuffle Isn't Enough

(Bloomberg Gadfly) -- Qualcomm Inc.'s idea of a board revamp leaves much to be desired.

The chipmaker on Friday announced Paul Jacobs, the son of its co-founder and a former CEO, would no longer be its chairman. That title will now pass to Jeffrey Henderson, a current board member, while Jacobs will remain on the board. Qualcomm says it made the change because it believed "an independent chairman is now more appropriate." You could say that.

Broadcom Ltd. was reportedly on track to win a majority of the seats on Qualcomm's board -- and by proxy, backing for its $100 billion takeover bid -- before the Committee on Foreign Investment in the U.S. delayed the vote by at least a month. One caveat to that count is many of the largest blocks of shares had yet to vote. But whatever those investors' ultimate decision, it's clear a large swath of Qualcomm holders are fed up with the current management and looking for a change. This latest reshuffling of existing members isn't what they had in mind.

Qualcomm Board Shuffle Isn't Enough

Henderson was put on the board in 2016 after activist investor Jana Partners pushed for changes, so that lends him a measure of credibility. Certainly, he's more independent than Jacobs. But in the time Henderson has served on the board, Qualcomm hasn’t done much to rework the business model for its licensing division, and its legal battles have escalated significantly. That's the crux of many shareholders' frustrations at this point. Henderson may not have been part of the problem, but he wasn't part of a solution, either.

I'm doubtful these moves will go far enough to win over skeptical Qualcomm shareholders. The Qualcomm board has (rightfully) been preoccupied with fending off Broadcom, but it now needs to be circumspect about the state of the company. CFIUS's intervention in the proxy fight and its strongly worded concerns about a Broadcom-Qualcomm combination have made the path to an eventual deal significantly steeper, if not impossible. The successful vanquishing of this hostile bidder cannot be celebrated with a return to the status quo, unless Qualcomm wants to do this all over again in a year (please, dear God, no.)

Qualcomm Board Shuffle Isn't Enough

Many shareholders don't believe Qualcomm can actually achieve the $6.75 to $7.50 in adjusted earnings per share it's targeting in fiscal 2019. Analysts are forecasting a mere $3.77 in EPS for that year. The $46 billion purchase of NXP Semiconductors NV -- assuming it passes regulatory muster -- will help diversify Qualcomm into the faster-growing markets for automotive and industrial chips. But the disparity in the two companies' businesses will make execution tricky, and Qualcomm can't afford any missteps.

Most importantly, Qualcomm needs to come up with a way to extract its licensing business from the never-ending legal war that has so irritated its shareholders. Qualcomm's plan doesn't have to include the wind-down Broadcom seems to be planning, but a rethink is necessary -- before a new activist investor does it for the company.   

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

To contact the author of this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net.

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