Qualcomm CEO under pressure to perform or exit

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Qualcomm CEO Steven Mollenkopf is under the pressure of several shareholders to improve performance or exit from the chipset maker.

Earlier, Qualcomm CEO sought the US government’s help to block Broadcom’s acquisition of the wireless chip maker on fears of China’s technological ascendance.

Yesterday, the 49-year-old former electrical engineer was forced to call off the $44 billion deal with NXP due to lack of approval from China. Qualcomm will pay a whopping $2 billion as termination fee to NXP.

A Reuters report indicates that several Qualcomm shareholders are willing to give Steven Mollenkopf, who has been CEO since March 2014, only one to two more years to show he can diversify the company’s business beyond the mobile phone sector that accounts for the vast majority of its business.

Qualcomm CEO should also be able to settle disputes with US-based Apple and China-based Huawei Technologies.

“Mollenkopf is in the ‘show me’ phase of his tenure. I think he has about two years,” said Tom Plumb, founder of Wisconsin Capital Management, which has 2 percent of its equity portfolio allocated to Qualcomm.

Earlier this year, Qualcomm asked the Committee on Foreign Investment in the United States (CFIUS), which scrutinizes deals for potential national security risks, to review a $121 billion hostile bid for Qualcomm by rival Broadcom.

President Donald Trump blocked the deal in March, citing CFIUS’s concerns over a shift to Chinese dominance in 5G wireless technology, even though Broadcom, which at the time was based in Singapore, was not a Chinese company.

China did not give approval for Qualcomm’s $44 billion acquisition of NXP Semiconductors. Qualcomm announced the NXP deal in October 2016. Qualcomm will lose termination fee as a result.

The strategy of Qualcomm was to attract NXP and derive revenue from the global automotive market and reduce its dependence on the smartphone market that could lose its charm in the next few years.

Qualcomm now faces an uphill struggle in carrying out a transformative acquisition such as NXP in the near term, given that all major semiconductor peers have a footprint in China that would subject any acquisition to a China review, the report said.

Steven Mollenkopf has acknowledged this, but told analysts on Wednesday that he believed big acquisitions would be possible again after this “unusual window” of trade tensions between the United States and China passed.

“Qualcomm has a lot to prove and the markets are not giving it the benefit of the doubt,” said Neuberger Berman associate portfolio manager Shawn Trudeau. Neuberger Berman’s equity income fund owns $10 million in Qualcomm stock and has been an investor in the company for close to three years.

Steven Mollenkopf has already faced questions about his leadership. Paul Jacobs stepped down from Qualcomm’s board in March to pursue a long-shot acquisition bid for Qualcomm, which has a market capitalization of $93 billion. His exit followed disagreements with Steven Mollenkopf over his business strategy.

Parts of Qualcomm’s global court battle with Apple are expected to come to a head in the fall and early next year, while Qualcomm and Huawei remain in talks to try to resolve their dispute.

Qualcomm generated 13.4 percent of its $22.3 billion in revenue in fiscal 2017 from non- mobile phones. Steven Mollenkopf expects Qualcomm’s non-mobile revenue to hit $5 billion this year, or about 22 percent of the $22 billion in overall revenue.

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