Activist investment hedge fund Jana Partners this morning (April 13) said it wants Qualcomm to consider spinning off its chip unit from its patent-licensing business. Qualcomm stock is up more than 5 percent in pre-opening trade. Jana owns $2 billion of Qualcomm stock.
Jana sent a letter this morning, making suggestions for the company to run up its stock price. Just last month, Qualcomm announced a $15 billion stock buyback aimed at driving up the stock price. According to Yahoo.com, Jana says Qualcomm's chip unit is "essentially worthless." The patent-licensing part of Qualcomm accounts for most of its profits.
Jana wants Qualcomm to cut costs, accelerate stock buybacks, and make changes in its executive pay structure, financial reporting, and board of directors.
It's not clear how Jana wants executive pay to be changed, but in March of last year, Steve Mollenkopf took over as chief executive from Paul Jacobs, who became executive chairman. According to Bloomberg Business, Mollenkopf and Jacobs were paid a stunning $117.7 million last year (combined). However, the two will reap some of these gains in later years.
Jana says it has had a "constructive dialogue" with Qualcomm. In its letter, Jana wants Qualcomm to address its "historical underperformance and improve investor perceptions of the company."
Nobody asked me, but I consider the mentality of the Jana letter to epitomize the problem with capitalism these days. Wall Street's focus is only on the stock price. It's not on the performance of the company. Jana's letter represents quintessential financial engineering suggestions. I can remember the day when intelligent companies believed that the most important duty of management was to build a solid company, and the price of the stock would take care of itself. Since the 1980s, the focus has been completely on making moves that will run up the stock. This will end badly.