There are no guarantees in life or the markets, as the saying goes.
And so it seems, for Qualcomm Inc., too.
Qualcomm, which held its annual shareholders meeting on March 23 is forging ahead to a future that still holds a lot of unknowns and challenges — complete with lawsuit battles against Apple Inc., an as-yet-to-be-completed deal with NXP Semiconductors NV, a former CEO with an idea to purchase the company and take it private, and a 10-member board of directors that shareholders have put on notice.
Leadership will be crucial for Qualcomm as it continues to expand its fifth generation (5G) technology into other industries besides cellular.
“The company is (a) national treasure,” said Jeffrey Sonnenfeld, a senior associate dean and a professor of leadership practice at the Yale School of Management. “It’s been a long-standing source of fundamental innovation for decades and our pathway to the next fifth generation of mobility.”
This is the first time in Qualcomm’s history that a Jacobs isn’t a part of the company.
Paul Jacobs, former CEO and executive chairman, and whose father, Irwin Jacobs, helped co-found the company, did not receive a re-nomination to serve on the board of directors.
That move followed a series of events, including Jacobs losing his spot as chairman of the board, and when Jacobs announced that he was interested in mounting a proposal to bid on the company and take it private.
“Most of our nation’s history has been a triumph of private, family-dynastic capital,” Sonnenfeld said. “Only since before World War II did we start to see the advent of managerial capitalism where you have lots of disparate shareholders with hired-hand employee managers as the dominant form of capitalism.”
He cited Michael Dell as a parallel to Paul Jacobs’ situation with Qualcomm. Dell, who purchased his eponymous company with the help of the private equity firm, Silver Light, to complete the deal, was able to take the then-public company private.
Dell is a great success story, Sonnenfeld said.
But in none of those cases, were the prospective buyers as board members forced off the board.
Contrary to many analysts’ notions that Jacobs’ would-be bid on the company was farcical, Sonnenfeld said he didn’t think it would be out of the question.
A privately-run Qualcomm, he said, would continue to have a very strong R&D base and would be allowed to make a schedule of investments that were on the shorter term and longer term. The company would also spend a lot less time in the distraction of activist-investor discourse and hostile raiders that see great value in optioning off pieces.
“Activist investors are one of our greatest strategic threats,” Sonnenfeld said.
“Ninety percent of the time, the activist investors are doing more harm than good for the nation and that’s why taking a company like Qualcomm private, is advantageous — to insulate itself.”
There has been a lot of noise surrounding Qualcomm since Broadcom’s hostile takeover bid, but there have been other distractions as well.
“(CEO Steve) Mollenkopf has made some mistakes,” Sonnenfeld said, adding that, “pushing Paul Jacobs off (the board) has only added to the noise.”
Sonnenfeld listed other issues the company’s facing, including disputes it has had with Huawei Technologies Co. Ltd. and Apple, which he said probably could have been handled better, and there are other fronts where Qualcomm could probably have done better strategically.
Mollenkopf, who had left for China following the shareholders meetings, said at the time that the most current lawsuit with Apple, over licensing fees, is expected to head to pre-trial later this fall.
Jana Partners, too, put pressure on the board when it held shares of the company.
Gary Lutin, chairman of the Shareholder Forum, said that with Jana Partners able to establish a credible threat a few years ago with a 2 percent holding, other activists can be expected to view that as an indication of likely marketplace support for a new intervention.
“Last week’s vote is another very strong indication of lack of shareholders’ support for the existing board,” said Lutin. “Shareholders do not view this company as being without need for help.”
But a weak board doesn’t necessarily mean the company is weak, he added. It means the investors don’t have confidence in the existing board’s ability to govern the company, even if the business is strong.
That, he explained, means either an activist or other company in a takeover could be supported by the shareholders.
Lutin, who didn’t want to speculate or predict what might happen with Qualcomm, said that the only thing that should be assumed is that a new activist investor or bidder for the company might get a sympathetic hearing from investors.
The March 23 Vote
“This is not a bad board,” said Sonnenfeld. “This was a board that made a foolish mistake in the last week and a half with Paul Jacobs, as the scientific and cultural core of the company.”
He cited the board last year received better than 90 percent of the vote.
Reuters, following the March 23 shareholders meeting, was the first to report on the preliminary results, showing that some of the re-elected board of directors received approval within a 50 percent range of shareholder votes, while the remainder received votes in the 40 percent range.
By press time, the official vote tallies weren’t yet made public from the SEC.
“The company’s performance didn’t go down the sewer this past year,” Sonnenfeld continued. “It was a good year. The performance was fine this past year. There’s no integrity issues — there’s nothing that would justify that fall in the vote other than the proxy rating firms confused everybody.”
He said the vote tally should serve as a reminder on how misadvised we often are, relying on the proxy ratings firms.
“ISS (Institutional Shareholder Services Inc.) gets it wrong as often as they get it right, and it just puts pressure on institutional investors, like lemmings, to follow what ISS recommends,” Sonnenfeld said.
“There’s a fair amount of active communication among leading shareholders,” said Lutin.
Most of the governance officials at larger shareholders know each other and develop fairly similar views for evaluating company practices and management communications, he explained.
For a company that recently touted its hope to expand its technologies to include the autonomous vehicle industry and electronic health care, among others, a lot will have to happen.
Part of that growth into new markets will have to include the completion of the continuing $44 billion merger effort with NXP.
As a sign of potential progress on the deal, NXP announced on March 28, the company was parting ways with 40 percent of its shares in Suzhou ASEN Semiconductors Co. Ltd., a private semiconductor manufacturer based in China.
That move, according to Anders Bylund, an industry analyst, may have been done in the hopes of easing regulatory approval from China’s antitrust authorities — the one hurdle still holding up the deal.
“It looks like an attempt to appease the Chinese regulators,” Bylund said. “I don’t know for sure if it’s going to work and it may or may not be enough. MOFCOM (China’s Ministry of Commerce) might ask for more than that. But it shows the goodwill, and it shows that both NXP and Qualcomm are interested in making this deal happen.”
However, an NXP spokesperson described the announced transaction with Suzhou ASEN as, “just part of the usual pruning of NXP’s asset portfolio.”
Should Chinese regulators not approve the Qualcomm/NXP merger, Bylund said the markets in general would view the move as retaliation for the political pressures from the U.S. However, he suggested the Qualcomm/NXP merger isn’t a game-changer by any means.