Qualcomm Says It's in Talks to Sell Phone-Making Unit (see bottom)
By Erik Schatzker at Bloomberg News
14 September 1999
Qualcomm Inc., developer of the world's second-most popular
cell-phone technology, said it's in talks to sell its
phone-making business and may take a charge as it cuts
costs.
The company said it plans to reach a sale agreement by year's
end. It didn't name the potential buyers.
A drop in handset prices and parts shortages are making it
hard for Qualcomm to compete with Nokia Oyj, Motorola Inc.
and Ericsson AB, the biggest cell-phone makers. After the
sale, Qualcomm will get revenue mainly from its chip business
and royalties from other phone makers that license its
code-division multiple access, or CDMA, technology.
"Qualcomm would have faced an uphill battle competing with
Motorola, Nokia and Ericsson in the handset business," said
David Powers, an analyst at Edward Jones & Co., who rates
Qualcomm "buy." "By getting out of the business, it can
focus on research and development and semiconductor
design."
Qualcomm, the best-performing stock on the Standard &
Poor's 500 Index this year, rose 14 1/4 to 167 5/8 in early
afternoon trading.
The company said it expects profit in the fiscal fourth quarter,
which ends this month, of 87 cents a share or more. Analysts
polled by First Call Corp. expect profit of 88 cents.
In the year-ago period, San Diego-based Qualcomm's net
income was $40 million, or a split-adjusted 27 cents a share.
Royalties from other cell-phone companies including Nokia
and Ericsson made up $93 million of the company's $966
million in third-quarter sales. That's up from $47 million a year
earlier.
Third-quarter sales of communications systems, which include
phones and chips, rose 9% to $824 million. Qualcomm said
parts shortages were preventing it from selling more phones
and warned that it could have similar problems in the fourth
quarter.
Today, Qualcomm said demand for its chips and phones is
stronger than in the previous quarters. Still, it reiterated that
shortages and competition are hurting its profit margins on
consumer products.
Falling prices have cut operating margins at other phone
makers. First-half operating margins at Ericsson, the world's
No. 3 cell-phone maker, slid to 1% from 13% a year earlier. The
company expects that to pick up next year, when it unveils
new models.
Qualcomm's plan to sell the phone-making business comes
after months of speculation that began when the company
agreed to sell its unprofitable network-infrastructure unit to
Ericsson in March. Qualcomm President Rich Sulpizio ruled
out a sale of the phone-making business in April.
Now, the company said it wants to find a buyer that will
assume its workforce and supply its customers.
"We will continue to support our customers and employees
through an orderly transition," said Qualcomm's president of
consumer products, Paul Jacobs.
Qualcomm didn't specify other actions it may take to cut costs,
the amount of the charge it may take or the quarter in which it
would be taken.
The company also makes equipment for satellite-
communications systems, including the Globalstar
Telecommunications Ltd. network. It didn't say whether those
operations will be sold with the handset unit.
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