Technology: Plans for Spinoff Dropped; COO Richard Sulpizio Leaves
Qualcomm Inc. last week reported it lost $275 million for its third quarter, bringing its nine-month total loss to more than $354 million.
It also scrapped plans to spinoff its chip-set division as a standalone public company, and bid farewell to its president and chief operating officer, Richard Sulpizio.
According to the company, Sulpizio, 51, who had been with Qualcomm since 1991 and rated as a top-notch executive by many Wall Street analysts, resigned “to pursue other interests.” He will remain on the board of directors, and was replaced by CFO Tony Thornley.
“I’m sorry to see him go. He’s had a good impact on the company,” said Brian Modoff, an analyst with Deutsche Banc Alex Brown about Sulpizio. “After he took over as COO they spun off their handset and a few other units. They really kicked into profitability when he took over.”
Sulpizio was supposed to head up the new entity containing the integrated circuits and system software business. Qualcomm produces the semiconductors that are part of cell phones and base stations. But the company said the spinoff was no longer necessary since it was able to enter 40 new license agreements with top manufacturers.
When Qualcomm proposed the spinoff a year ago, the concept was intended to create an independent company that would separate the chip-making arm from Qualcomm’s royalty and licensing unit, and eliminate potential lawsuits from those same manufacturers that are buying Qualcomm’s chips, but also paying out fees to use its patented CDMA technology.
Besides signing long-term deals with manufacturers such as Nokia, NEC and Fujitsu, the company also avoided the prospect of a bad reception from Wall Street in a public offering that was estimated to raise $100 million.
“It could have been profitable, but the stock has been so depressed over the last 12 months and the IPO market is very unwelcome right now,” said Bruce Ahern, a local technology industry analyst.
In another restructuring move, Qualcomm announced it was dividing its company into two units, the Wireless and Internet Group, headed by Paul Jacobs, and CDMA Technologies Group, headed by Donald Schrock.
Ahern said moving the younger Jacobs into a more responsible position isn’t surprising, given chairman and CEO Irwin Jacobs’ age.
“(Paul) is moving up in the dynasty. They’re positioning him to take over when Irwin retires,” Ahern said. “Sulpizio has the misfortune of not being a Jacobs.”
Qualcomm has pursued a strategy of starting up technology firms and then selling them or spinning them. It sold off its infrastructure business to competitor Ericcson, and last year sold off its handset manufacturing unit to Kyocera. It also spun off a wireless carrier unit that had been mostly international as Leap Wireless International a few years ago.
The changes reduced Qualcomm’s worldwide employment from about 11,000 to 6,500 today, with most of those based here.
Qualcomm downplayed its actual net loss by reporting “pro forma earnings” of $174 million for the quarter, which does not include extraordinary one time losses from such things as write-downs on investments and charge-offs caused by bad investments. Pro forma earnings were down 20 percent from the like period last year, when it reported $218 million in pro forma earnings.
Among the largest factors contributing to the $275 million net loss was a pre-tax charge-off of $241 million related to Qualcomm’s investment in Vesper Cos., a Brazilian telecommunications entity.
Despite the net loss, Qualcomm had $2.1 billion in cash and equivalents.
Qualcomm said revenues for the third quarter were $640 million, down from the like period last year of $714 million. The lower sales were caused by decreased sales from its joint venture with troubled Globalstar; lower license fees and lower shipments of chips.
Although Qualcomm’s stock slid by 3 points on the news of the restructuring, it recovered the day of the financial results, ending at $59.66 at the close of trading July 26. It’s 52-week range is $107.81 to $42.75.
Another San Diego-based telecom provider, Novatel Wireless Inc. reported a net loss of $25.8 million on revenues of $12.5 million for its second quarter compared to a net loss of $9.7 million on revenues of $9 million during the like period of last year.
Novatel, which makes wireless data modems and software used by handheld computers, blamed the drop-off in sales on the continued softness in the global economy and temporary delay in shipments of next generation products.
Included in its quarterly expenses was a provision of $13 million for excess inventory already shipped to one of its customers, Metricom, which filed for bankruptcy and has not paid its bill, the company said.
Leap Wireless, the San Diego based wireless carrier firm, saw its stock take big hits following its second-quarter results. For the quarter, Leap had a net loss of $128.5 million, or $3.91 per share, compared to a profit of $234.3 million, or $9.17 per share in the like period last year.
Revenues increased to $47.8 million from $18.5 million a year ago, while the firm said its Cricket service had 472,000 subscribers compared to 339,000 a year ago.
The stock lost about 20 percent of its value to close at about $25 on July 25.
