(Reuters) – Qualcomm Inc. CEO Steven Mollenkopf asked the government for support to block an acquisition of the US chipmaker for fear of China's technical advancement, only to thwart its biggest deal in China.
FILE PHOTO: Steven Mollenkopf, CEO of Qualcomm, attends the Wall Street Journal Digital Conference in Laguna Beach, California, US October 1
Now the 49-year-old former electrical engineer is under pressure from investors to show that he can do it on his own.
Several Qualcomm shareholders surveyed by Reuters said they would only give Mollenkopf, who has been CEO since March 2014, one to two more years to show that he is outperforming the company's business beyond the highly competitive mobile phone sector can diversify the vast majority of its businesses and dispute disputes with Apple Inc and Huawei Technologies Co Ltd.
"Mollenkopf is in the 'Me & # 39; phase of his tenure, and I think he has about two years," said Tom Plumb, founder of Wisconsin Capital Management, which has 2 percent of his equity portfolio for Qualcomm.
Mollenkopf faces the consequences of a bold gambit. Earlier this year, Qualcomm asked the Foreign Investment Committee in the United States (CFIUS) to examine a potential national security risk agreement, a $ 121 billion bid by Broadcom Ltd. to test for Qualcomm.
It was an unusual step because usually only agreed deals are submitted for the CFIUS review. If CFIUS took over, the US government, not the shareholders of Qualcomm, would decide its fate.
Qualcomm's maneuver worked. President Donald Trump blocked the deal in March, citing CFIUS concerns that the dominance of 5G wireless technology would increase in China, even though Broadcom, which was based in Singapore at the time, was not a Chinese company.
Amid increasing tensions with the US over trade disputes, China responded by holding back its antitrust review of the $ 44 billion acquisition of NXP Semiconductors NV, which both companies agreed in October 2016.
Frustrated on Thursday Due to the seemingly endless delays of the Chinese regulators, Qualcomm canceled the merger agreement with NXP and paid him a $ 2 billion dissolution fee. NxP, whose strength was expected in the automotive market by Qualcomm, should reduce its dependence on the smartphone market.
Qualcomm now faces the difficult task of undertaking a transformative acquisition such as NXP in the near future, as all of the major semiconductor peers in China need to gain a foothold in order to subject each acquisition to a China review.
Mollenkopf has acknowledged this, but told analysts on Wednesday that he believes large acquisitions would be possible again after this "unusual window" of trade between the United States and China has passed.
Without NXP, Mollenkopf needs to find ways to expand Qualcomm's chip offering for itself in industries such as automobiles, Internet connectivity and network processing, investors say.
"Qualcomm has a lot to prove and the markets give him no doubt," said Neuberger Berman Associate Portfolio Manager Shawn Trudeau. Neuberger Berman's equity fund owns $ 10 million of Qualcomm shares and has been an investor in the company for almost three years.
A Qualcomm spokeswoman said the company's earnings showed "that the company's execution was very strong in a time of great distraction" and that it had received positive feedback from investors in its section.
Mollenkopf has already asked questions about his leadership internally. Qualcomm's predecessor, Paul Jacobs, stepped down from the Board in March to pursue a long-term acquisition bid for Qualcomm, which has a market capitalization of $ 93 billion. His output followed disagreements with Mollenkopf about his strategy, sources said at the time. Jacobs has yet to secure the funds to put together this offer.
Later in March, investor frustration turned into Qualcomm's annual general meeting, when Mollenkopf was elected to the company's board of directors with only 45 percent of the outstanding shares. Shareholder advisory firms such as Egan-Jones Proxy Services said anything under 80 to 90 percent of the vote would undermine the authority of Mollenkopf and other board directors.
Mollenkopf received a partial reprieve on Thursday when Qualcomm closed 7 percent at $ 63.58 as investors cheered on the $ 30 billion share repurchase program. Qualcomm announced the loss of the NXP contract and celebrated the end of uncertainty over the NXP deal.
However, Qualcomm's stock is still below the $ 76.00 level when Mollenkopf became CEO 4-1-2 / years ago, and well below Broadcom's 82-per-share offering in the US February was rejected. Hal Eddins, Chief Economist at Capital Investment Counsel of Qualcomm, said that this puts Mollenkopf under new pressure to improve performance.
"Obviously we got caught up in something above us, so I do not know if I would do anything about our own business, our ability to invest [in China]or partners with Chinese companies," Mollenkopf told Reuters Wednesday.
MATCHING WITH APPLE
Mollenkopf's immediate challenge is to reach Qualcomm's target of $ 7.50 in adjusted earnings per share by fiscal 2019, compared to $ 4.28 in fiscal 2017. That depends on the solution of the licensing disputes with Huawei and Apple to continue to diversify their sales.
Parts of Qualcomm's worldwide lawsuit against Apple are expected to escalate in the fall and early next year, while Qualcomm and Huawei are in negotiations to try to settle their dispute.
Only 13.4 percent of Qualcomm's € 22.3 billion sales in fiscal year 2017 were not tied to mobile phones. This year, Mollenkopf expects Qualcomm's non-mobile revenue to be at the low end of the company's forecast at $ 5 billion, or approximately 22 percent of its total revenue of $ 22 billion.
Mollenkopf "is safe on the clock, and I'm not sure the NXP purchase would have changed that," Eddins said.
Reporting by Stephen Nellis of San Francisco and Liana B. Baker of New York; Editing by Greg Roumeliotis and Leslie Adler