The re-alignment plan is essentially an exercise in cutting back to find the core value creation in a company that has become, it could be argued, flabby with success achieved in earlier years. It includes aggressive plans to cut $1.4 billion in annual spending including a $300 million reduction in share-based compensation grants to executives and to increase the capital returned to shareholders.
The plan was announced alongside the company's third quarter fiscal 2015, financial results which showed a significant drop in profit and in revenue compared with the same quarter a year before.
The announcement has come after lobbying from JANA Partners LLC, an activist shareholding company that is also a significant Qualcomm stockholder. It also comes amid signs that growth in the smartphone market where Qualcomm is a leading semiconductor supplier is flattening off. Qualcomm is also being attacked in that market by Chinese and Taiwanese fabless semiconductor suppliers.
A further negative long-term indicator for Qualcomm is that geographical regions either have or are considering taking Qualcomm to court over the terms and conditions of its IP licensing. Qualcomm was the original developer of CDMA communications technology, which is present in 3G and 4G communications standards (See China deal squeezes royalty cuts from Qualcomm and Qualcomm's sales practices are under scrutiny in Europe).
Qualcomm said it had struck a deal with JANA Partners under which Mark McLaughlin and Tony Vinciquerra have been added to the board of directors and that a third director, to be approved by JANA, will also join.
"We are right-sizing our cost structure and focusing our investments around the highest return opportunities while reaffirming our intent to return significant capital to stockholders and refreshing our board of directors," said Steve Mollenkopf, CEO of Qualcomm, in a statement.
Next: Cutting costs by 15 percent