Here's Why A Qualcomm Split Is A 'Terrible Idea'
Jana Partners is pressuring QUALCOMM, Inc. (NASDAQ: QCOM) to spin off its chip production division and allow the patent licensing business to fly solo. Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, is among those who are against the idea.
"I think that's a terrible idea," Udall told Benzinga. "Qualcomm is a super cheap stock. It only trades a little bit above net cash. You get this interesting dynamic [with both divisions]."
Udall referred to Qualcomm as a "really strong business" that produces a lot of cash flow. He said that if the company is broken up, it may not have the same power of innovation.
"What if, five years from now, they invent a completely new chip?" Udall questioned.
The results could be catastrophic if Qualcomm's chip manufacturing and patent licensing businesses are not under the same roof.
"I do like activism," said Udall. "[But] there are times when, if you don't like the stock, you can sell it and buy a different stock."
A Different Focus
Global Equities Research analyst Trip Chowdhry would prefer that activist investors drop this cause and focus on improving patent law.
"I think this is not a good idea," Chowdhry told Benzinga. "I think the focus should be…putting the effort on patent laws. Patent laws have been against standards-essential patents."
Chowdhry was particularly troubled by the outcome of Microsoft v. Motorola. According to a 2013 report by AllThingsD, "U.S. District Judge James Robart determined that Google's Motorola Mobility unit is entitled to about $1.8 million a year from Microsoft for its use of certain patents." Motorola had hoped to receive more than $4 billion.
"In that ruling, the value of standards-essential patents was completely collapsed by the judgment," Chowdhry added. He said that splitting Qualcomm in two won't solve this problem, which he believes is far more important than the value this activist investor hopes to gain.
"I think this investor is totally clueless about what is happening [in U.S. patent law]," Chowdhry concluded.
Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.
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