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Wednesday, Nov 29, 2023

Qualcomm, Kyocera, Deal Price, Set at $500M

Qualcomm Inc.’s sale of its cell phone manufacturing operations in La Jolla to Kyocera Corp. last month probably garnered about $500 million, although one estimate was as high as $1 billion, according to several analysts.

“My guess is that it was somewhere between $350 million and $500 million,” said Wojtek Uzdelewiez, an analyst for SG Cowen & Co. in Boston.

Neither Qualcomm nor Kyocera, a Kyoto, Japan-based manufacturer with operations in San Diego, disclosed the price paid for the phone division when the deal was announced Dec. 22. The transaction is subject to regulatory approval and should close in February.

But several analysts tracking the high-flying telecommunications company said Qualcomm probably sold the division for a price below the book value of the assets, which were estimated at about $500 million.

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Michael Ching, an analyst for New York-based Merrill Lynch, said the sale was for less than $500 million, and likely closer to $400 million.

Alex Cena, an analyst with Salomon Smith Barney, said the price was “roughly $400 million, plus or minus $25 million.”

Yet one source, the Australian-based news service Asia Pulse Pte., said the transaction was “more than $1 billion, or about 102 billion yen.”

Whatever the price, most investors viewed the deal as a positive one, pushing up Qualcomm’s stock in late December to above $600 just before a 4-for-1 stock split. As of last week the stock was trading about $160.

“For a long-term perspective they did the right decision,” said Uzdelewiez.

Deal A Surprise

By selling off the cell phone business, Qualcomm no longer competes with some of its top customers, such as Motorola, Nokia and Samsung. Those companies produce phones in much larger volumes and far more profitably, he said.

The deal with Kyocera was a surprise to most analysts who expected the sale to Nokia or Motorola.

Kyocera is a major producer of cell phones in Japan and Korea. Its main product line is the ceramic packages that cover semiconductor chips, but it also produces Yashica cameras, and other products.

Kyocera has about 38,000 employees worldwide, including 800 in San Diego. For its last fiscal year, Kyocera reported net income of $239 million on revenues of $6.1 billion.

Kyocera spokesman Jay Scovie said the company will create a new subsidiary, likely to be called Kyocera Wireless Corp., to retain the bulk of the more than 2,000 employees assembling the cell phones.

Kyocera will contract with Qualcomm for workers now employed by Qualcomm Consumer Products and to be transferred to a newly formed Qualcomm subsidiary. The group contains workers who handle the sales, servicing, design and marketing of the cell phones.

“We’re still in the early stages of identifying who the candidates (from QCP) will be,” Scovie said. He added it is unlikely they will all be retained.

Asian Expansion

Kyocera plans to expand its production of CDMA cell phones in plants in Japan, South Korea and San Diego. For the coming fiscal year, the company expects to more than double its current production of the phones to about 16 million, with the San Diego plant producing about half that number, Scovie said.

Qualcomm said the cell phone operation had revenues of $1.4 billion last fiscal year, and lost about $40 million.

Christine Timble, a Qualcomm spokeswoman, said the phone manufacturing operation has about 4,000 employees, and is evenly split between manufacturing workers, and those in the sales, management, and design unit of Qualcomm Consumer Products.

The phone manufacturing operation was established in 1994 as a joint venture with Sony Corp. Last year, Sony moved all its phone manufacturing out of North America, including the San Diego plant, Trimble said.


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