Qualcomm has been on top in the mobile processor space for a number of years now, powering everything from budget smartphones to high-end flagships. But this year the company has seen its revenue and operating income drop by around $1 billion, as some expected. This has caused Qualcomm to announce a major restructuring of the company that will see workforce layoffs of up to 15 percent.
Qualcomm is looking to make savings of around $1.1 billion over the next two years from the labor aspects of its restructure. As part of the plan, the company will reduce its temporary workforce, make cuts to engineering, and cut its number of offices. The company is also reducing investment outside of its core chip business by $300 million per year. Overall, Qualcomm wants to save $1.4 billion annually.
“While we are sharply focused on managing costs, we are not sacrificing the future for the present,” – CEO Steve Mollenkopf
In an interview following the announcement, CEO Steve Mollenkopf also talked about the rumored company split. Qualcomm is to undertake a “fresh review” of its corporate structure, to be completed by the end of 2015. He refused to talk about the issue in any further detail until the analysis has been completed. The company may split its chip and licensing businesses into two companies, if a good enough reason to do so can be found.
In terms of financial figures, revenue fell 14 percent from $6.8 billion to $5.8 billion. Operating income fell by a huge 40 percent and net income was also down 47 percent year over year.
The reasons for Qualcomm’s poor year are tricky to pinpoint exactly, as the company has been taking hits at both the high and low ends of the market. The loss of Samsung as a major customer this year, when the company opted for its own Exynos chip in the Galaxy S6, has likely been costly. Samsung has continued to see profits from its semiconductor business grow, due to its own products and orders from Apple.
Overheating issues with its Snapdragon 810 SoC have also probably impacted chip demand. The move over to 64-bit seemed to catch Qualcomm out, leaving it to quickly design a chip based on ARM’s reference CPU designs rather than its own custom 64-bit core, codenamed Kyro.
In the cost effective end of the market, the increasing quality and feature sets included in lower cost MediaTek and RockChip products have also begun squeezing Qualcomm’s chip business, with their lower margin business models. These alternative manufacturers are seeing big success in growing markets such as India and China.
“We are not going to withdraw from tiers [of the market].” – CEO Steve Mollenkopf
Other companies are also now more widely making use of their own modems, which has been cutting into another one of Qualcomm’s traditional revenue streams.
Qualcomm does have a few reasons to be positive though. The company will be moving over to 16nm FinFET production next year and should be using its own 64-bit cores in next year’s Snapdragon 820 SoC. The company is also at the forefront of 5G modem technology, which will be important in the coming years, and is looking for additional revenue streams in the budding Internet of Things markets.
Despite the restructure, Qualcomm is looking to spend more than $4 billion on R&D in the coming years. The next twelve months are going to be a tough transitional period.