Qualcomm lays off 15% of its workforce, succumbs to cult of shareholder value

http://www.extremetech.com/computing/210758-qualcomm-will-lay-off-15-of-its-workforce-succumbs-to-cult-of-shareholder-value

by RachelF • 11 years ago

86 64 11 years ago

extremetech.com

faragon• 11 years ago

So they're going to cut their CPU R&D and become a generic ARM IP integrator, plus their GPU and radio-frequency circuits (Adreno GPU, GSM, WiFi, GPS). Next moves could be discarding their own GPU for the ARM generic ones (Mali) and using 3rd party IP for the radio. Scary.

higherpurpose2• 11 years ago

Which is funny because the reason Qualcomm screwed up recently (besides all the anti-competitive/antitrust issues) is because it didn't come out with its own next-generation custom CPU core sooner, and had to use stock ARM IP which I guess it didn't have much experience in handling.

The shareholders' "solution" is what will destroy the company. Qualcomm would've been fine in the next 2 quarters, once it passed the Snapdragon 810 generation.

I don't know why they freaked out so badly after just one bad quarter (and after Qualcomm has constantly grown for the past 5 years) to the point where they want to split the company. That seems rather crazy. I wonder if there's something else besides next-quarter-profit thinking behind this motivation.

fpgeek5• 11 years ago

If you believe the article (I'm not sure whether or not I do), the shareholders didn't freak out because of the bad quarter - it was just an opportunity to push their pre-existing agenda of prioritizing returning capital to shareholders instead of investing in the business. If that happens to destroy the company in the long run, these shareholders might not care - nothing stops them from selling their shares well before the long run arrives.

TorKlingberg• 11 years ago

I really cannot see Qualcomm using 3rd party IP for cellular radio. It's their core business, and they are the leader in LTE modems.

jeswin• 11 years ago

It may not be a bad idea after all. Unlike Intel, Qualcomm hasn't been able to demonstrate a price-performance advantage with in house engineering. MediaTek's far cheaper ARMv8 processors are competitive performance-wise.

fpgeek5• 11 years ago

Um, what? Yes, the ARMv8 transition was a problem, but until then, Qualcomm had been consistently delivering the best combination of power and performance all the way back to the Snapdragon S4. It's not like Samsung was putting Qualcomm chips in their flagships because they wanted to - they had to in order to keep them competitive.

golergka8• 11 years ago

But shareholders are people who actually own the place. And if you own something, you are in charge: even if you own something collectively, and hire a manager to make immediate decisions, you have the power to [collectively] tell that manager what do you want him to do.

Abstract "business inetersts" only serve to earn money to business's owners in the end. Being a market leader is only a means to an end of making money for the owners. If the people who own the place decide, for whatever reason, that they don't need long-term development and want quick money now instead, let them be: it's their decision to make.

Now, it is possible that shareholders don't act in their true interests, and they should be thinking about long-term value instead, because that way they'll earn more money in the end. But it's them who you need to convince of that, and the argument should be structured completely differently. Blaming CEO of the company forthe fact that he does exactly what his collective bosses tell him to do, instead of thinking of abstract "business interests" (that exist just to earn money to his bosses) and employees (to whom his company is responsible only in the extents of their employment agreements) is ridiculous.

jahnu• 11 years ago

There was an article recently on the BBC that shareholders there are only holding shares for an average of 6 months. Their motivations then become extremely short term. The Bank of England's chief economist has warned that this is slowing growth.

http://www.bbc.com/news/business-33660426

ucaetano3• 11 years ago

Just as slow and entrenched management is also slowing growth.

http://www.economist.com/news/leaders/21642169-why-activist-...

There are many ways to set up a company in a way that reduces the influence of activist investors and short-term holders. One is reducing liquidity (such as Berkshire). Another is setting up classes of shares (such as Google).

Still, they only make sense when the company is profitable and paying nice dividends (or growing fast).

When you IPO you're going to the market asking for money and offering growth or dividends in return. If you don't want to be subject to the conditions investors place on the capital, don't raise any and keep the company private.

You can't have the cake (receive money from investors) and eat it too (not be subject to their demands).

golergka8• 11 years ago

So, why do they have these motivations? Does this actually hurt shareholder's interests?

simonh• 11 years ago

Except in practice shareholders are not a cohesive organisation capable of effectively directing the strategy of the company. That's why companies have managers. Nobody is saying that improving shareholder value is a bad thing, just that it should be sustainable and be based on genuine business fundamentals and not short termism. Think of it as consumer protection. If share values are driven up by short term financial tricks, new shareholders are being ripped off. The role of regulation here is to make sure that apropriate controls and disclosure is in place to make sure that those prospective new shareholders have the information they need to apropriately value what they are buying. Yes the onus on them is to research and understand their investment decisions, but equaly the onus is on the business and regulators to make sure it's possible for them to do obtain that information in clear and transparent way and that management incentives and corporate governanace rules are fit for purpose.

golergka8• 11 years ago

are not a cohesive organisation capable of effectively directing the strategy of the company

They don't need to be: they just need to communicate their priorities to that manager. In this case, they communicated that they value short-term goals over long-term.

it should be sustainable and be based on genuine business fundamentals and not short termism

Probably. I actually agree on that. My point is, that's shareholder's decision. And if you want to argue about that, you should talk to shareholders and explain that they decision hurt themselves. Don't talk to the manager and say that he's in the wrong, because that's not his level of responsibility.

If share values are driven up by short term financial tricks, new shareholders are being ripped off.

Shareholders, by buying and selling the share values, dictate them. So, they are ripping off themselves. Again, I agree with that: but you should talk to them, not CEOs.

The role of regulation here is to make sure that apropriate controls and disclosure is in place to make sure that those prospective new shareholders have the information they need to apropriately value what they are buying. Yes the onus on them is to research and understand their investment decisions, but equaly the onus is on the business and regulators to make sure it's possible for them to do obtain that information in clear and transparent way and that management incentives and corporate governanace rules are fit for purpose.

I must admit, I read the article on my phone, so I may have missed it, but did this discussion involve regulations?

ucaetano3• 11 years ago

"Except in practice shareholders are not a cohesive organisation capable of effectively directing the strategy of the company."

That's why shareholders don't make management decisions. They elect a board for it.

yummyfajitas6• 11 years ago

The role of regulation here is to make sure that apropriate controls and disclosure is in place to make sure that those prospective new shareholders have the information they need to apropriately value what they are buying.

The regulators already ensure this in various ways:

a) It's illegal for Qualcomm to transmit any information to the activists before it's transmitted to the global markets. For instance, back in April, Qualcomm publicly responded to Jana: http://blogs.wsj.com/digits/2015/04/13/qualcomm-responds-to-...

It would be insider trading if Jana were told anything that was not told to everyone.

b) Folks who own significant shares of a public company (I think 5%), i.e. activists, are obligated to disclose it.

c) Activists generally publish their activism. For example, here is a higher up at Jana talking to CNBC about Qualcomm: http://www.cnbc.com/2015/04/13/qualcomm-should-consider-brea... The reason they do this is in order to encourage other shareholders to vote the same way they do.

No one is being ripped off. Share values are being driven up because the market believes Qualcomm's prospects for long term cash are lower than the prospects for short term cash. If you disagree with this claim, feel free to get rich with a short position.

JohnTHaller2• 11 years ago

The cult of shareholder value is all about EARNING MONEY THIS QUARTER NO MATTER WHAT AT THE EXPENSE OF ALL ELSE (including ethics, legality - at least in terms of expense for fines/lawyers, fairness, product quality, etc). In the long run, it's a destructive force of the market, but it's the way nearly all publicly-held companies go eventually. At least those that are majority owned by the public.

venomsnake• 11 years ago

A solution to shortermism - make sure that stock that has voting rights cannot be resold or optioned more than once per 2 years.

golergka8• 11 years ago

It is also a good application of single responsibility principle, which is widely regarded as a good thing in software development, because it helps build systems that are easy to worry about.

You want some other values to be upholded to certain values? Create mechanisms that will translate these values to the value this component of the system is interested in. Actually, it's already done quite succesfully with regulation and fines.

If you want one component of the system to care about a lot of different variables, on the other hand, that's an easy way to create an awful, bloated system where every component is supposed to take care about everything, and in the end, nothing works.

cft• 11 years ago

This came from the separation of ownership from control, that happened in many American public companies in 1960s. In 2008 for example Ford did not receive bailouts, and it still has significant Ford family ownership, unlike GM (but like Toyota incidentally).

lordnacho• 11 years ago

Sure, it's true when you own something you get to decide what to do with it.

But I see the problem being a lack of optimism. You don't see what the company might do in the future, it all seems so risky. So instead of investing in new tech, you try to take what you have off the table. This has benefits to the managers: you can count dollars up front, and your business school education is basically about bean counting. Nobody will ever know that you could have made the next breakthrough. How many firms could have marketed the iPhone? Probably quite a few. (One of the best things about Steve Jobs is he didn't give up or sell Apple when they looked like they were in deep poop.) You can always claim it would have been risky because of such-and-such competitor, regulation, status quo, etc.

Look at the corporate world now. They are all sitting on huge piles of cash, not knowing what to do with it. That's what a buyback is for, when you give up on thinking of new things to do, but you're happy to take credit for previous successful management's decisions.

Fair enough that some businesses really are at the end of the line for whatever they do. But they can't all be. And we'll never know how much growth is slowed by bean counting: the trading of what you could have had for what you are afraid to lose.

yummyfajitas6• 11 years ago

Investors are quite happy to be optimistic and trust some companies to invest in the future. For example, Amazon and Facebook's share prices are not remotely justified by their cash flow.

Qualcomm is just not one of the companies that investors are optimistic about.

I'm curious though; if you thought Qualcomm was such a great buy before, did you buy shares? If you (and everyone else) had, that would have pushed prices up and everyone would have ignored Jana.

tw04• 11 years ago

Shareholders only work when they both: Know what it is they own. Care about the long-term health of the company.

The 401k could probably be blamed for the majority of the issues in the US. You have a chunk of your money removed from every paycheck, it goes to a magical place, and you make money that you will not see again until retirement. That's how it works for 99% of the public based on my experiences talking with friends/colleagues etc. The "magical place" is a blowhard whose sole goal is to maximize HIS profit, which means short-term gains that he can charge exorbitant fees for.

The average American doesn't seem to know/care/want to know/care about where that money is going, as long as they see a positive return every quarter. And that's just bad for everyone.

steve19• 11 years ago

I hate the term "activist investor", "robber baron" or "corperate raider" is more apt in so many cases.

jbb555• 11 years ago

Or perhaps "owner" would do. It might not be what you would like but they own the place so it's their right to do what they like with it. Of course when they ruin it, it just opens up competition for more enlightened compaies so it's not all bad,

fpgeek5• 11 years ago

"Owner" is usually an overstatement. Yes, an activist investor has to own some chunk of the company (and it has to be a big enough chunk that management will pay attention to them), but they don't own the whole thing - or even a controlling interest. If they did, they wouldn't need to be activist, they'd just fire the existing board and management and hire people that would do what they want.

Instead, activist investors own a small, but large enough chunk, advocate for what they want and rely on other investors being passive (e.g. because a lot of the company is owned by tiny slivers of much larger portfolios) even if what they're advocating isn't in other investors' interests.

bhouston• 11 years ago

This is actually about Qualcomm not being g a provider of CPUs to either apple and Samsung who basically is. The cellphone market if you are not in those phones you are fighting for scraps. This was a necessary move.

rayiner4• 11 years ago

Teeth gnashing about short termism among investors aside, there may be a practical reason for this move. Apple and Samsung are both moving to their own micro-architectures. Apple has been using an in-house design since the A6, and Samsung's 64-bit ARM core will likely drop in the next year or two (the M1).

Doing your own CPU architectures is a phenomenally capital intensive business, and Qualcomm may not feel positioned to keep up. Even ARM is getting left behind. The A57 is a power-hungry design that has faced major problems with thermal throttling in many designs. The amount of cash Apple and now Samaung can throw at their custom designs may be overwhelming.

fpgeek5• 11 years ago

The amount of cash Apple and now Samaung can throw at their custom designs may be overwhelming.

Not to mention all of the soon-to-be-ex Qualcomm engineers it just got a lot easier for them to hire.

smackfu• 11 years ago

Don't they all still use Qualcomm comm chips?

blinkingled• 11 years ago

Not exclusively anymore - Samsung is starting to use it's own in-house chips for modems (some versions of S6 use them right now). Mediatek is doing the same I think. Intel has its own that the ZenFone 2 is using for example. Not sure about Apple.

akgerber• 11 years ago

Depends on what you mean by 'chips'— Qualcomm sells both discrete modems, which many cell manufacturers use, and systems-on-a-chip including modems, which they had recently been doing very well with, but just had a bad round of.

higherpurpose2• 11 years ago

That's nonsense. First off, ARM is able to "keep up" with only tens of millions in profit a year. Second, Qualcomm is one of the richest chip makers. Third, Samsung hasn't been using custom CPUs and GPUS - at all.

rayiner4• 11 years ago

It's debatable whether ARM can keep up with custom cores. Both the A15 and A57 designs have been underwhelming from a performance per watt point of view. The A57-based Snapdragon 810 has suffered from thermal issues: http://arstechnica.com/gadgets/2015/04/in-depth-with-the-sna....

Samsung has not yet used their own core, but their custom 64-bit ARM core is at an advanced stage of development: http://www.kitguru.net/components/cpu/anton-shilov/samsungs-...

Qualcomm is big, but Intel, Apple, and Samsung are all targeting custom cores in this space, and they may reasonably feel like doubling-down on their LTE technology and not trying to compete in that space.

JustSomeNobody3• 11 years ago

Exynos isn't a custom chip?

bryanlarsen• 11 years ago

You may complain about quarterly capitalism, but studies show that investors with a short time horizon do better than investors with a longer one.

http://marginalrevolution.com/marginalrevolution/2015/07/how...

protomyth• 11 years ago

Do you have a 401K or IRA? Do you pick your funds based on long term company fundamentals or how much the fund is returning year after year? Does your HR department hear from employees that the companies they picked to run their accounts are not performing each year?

JustSomeNobody3• 11 years ago

A few short years from now Qualcomm won't actually produce anything. Instead it'll just license their patents.

Yet another company that won't actually "make" stuff. Eventually it is all going to come crumbling down.

secondox• 11 years ago

come on Qualcomm is a US company, just doing what everybody else does the best: layoff when the diaper is wet.

Qualcomm lays off 15% of its workforce, succumbs to cult of shareholder value

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