May 21, 2018
The Jacobs name is synonymous with Qualcomm. Irwin Jacobs founded the company, and his son Paul was CEO for more than a decade.
And now there’s a chance—however small—that a Jacobs could return to try to save the company from its current problems. Specifically, Paul Jacobs left Qualcomm’s board and is now reportedly in the process of lining up financing to take control of Qualcomm and then take it private.
Can Paul save Qualcomm? It’s a long shot, according to analysts.
A number of veteran wireless analysts suggested that Jacobs’ bid, which was reported last month by Bloomberg, may not be able to overcome Qualcomm’s huge price tag. They suspect Jacobs and his investors will be unwilling to load up on the debt needed to pull the transaction off. “My guess is that it will fall short just because it’s an enormous amount of money to raise,” said Avi Greengart, GlobalData’s research director for consumer platforms and devices.
Under the surface, however, the changes in the mobile industry since Qualcomm’s heyday may be just as big an obstacle.
Reuniting the band
The Jacobs name carries plenty of weight in the wireless industry. After all, it’s the family that helped create the GSM/CDMA split. So, it’s not a surprise that the return of the Jacobs family to Qualcomm is an enticing prospect. “It reminds me of the scene in the ‘The Blues Brothers’ when they get out of jail and say that they are going to get the band back together,” said Michael Thelander, the president and founder of Signals Research Group. “Back in the day they … did a lot of visionary things. Paul was a part of it. Getting back into that mindset would be interesting.” Thelander doubts that Jacobs will succeed, however.
One analyst pointed out that, unlike Michael Dell’s successful takeover of the company that bears his name, Jacobs lacks significant equity in Qualcomm on which to mount his bid. A report at Financial Times said that Jacobs is trying to secure commitments for as much as $100 billion.
Beyond the high financial barrier, analysts suggest that today’s Qualcomm faces a much different industry than the one led by Irwin and Paul. After all, Qualcomm’s traditional strategy has been to play the long game and invest in projects that don’t have definitive and short-term paths to reward. That may have worked in the 1990s, when the cell phone industry was just getting started, but today’s smartphone market is saturated, 4G has not greatly increased average revenue per user, and emerging technologies such as the IoT, though exciting and clearly promising, have not proven to be reliable revenue generators. The next great revenue stream has not yet been identified.
In other words, why would investors get excited about IoT-based healthcare or virtual reality, as cool and useful as they may be, if it is not clear that either will pay off?
Wall Street woes
This suggests that the company could come under pressure from Wall Street to jettison noncore elements. Joe Madden, founder of research firm Mobile Experts, said the company is vulnerable because there are lots of areas that can be cut without impacting operations or revenue streams. Wall Street likes that, but the question is whether Jacobs would go to the trouble and expense of taking over Qualcomm just to implement a strategy he probably wouldn’t like. Madden said that the company must “trim down” in order to be less vulnerable, so such moves may be necessary even if Jacobs’ plan is to take the company private and avoid Wall Street.
Jacobs could not be reached for comment for this story. The analysts said that they did not have any insight into the direction he would take the company if he did gain control.
Though it seems unlikely, the return of a Jacobs to the helm of Qualcomm would be meaningful. “I think it actually matters, not just [because of] the name,” GlobalData’s Greengart said. “He has run the business and understands the technology as well. This is both a technology management issue and business management issue. I think it’s a bit of a confidence issue if you work for Qualcomm and invest in these long-term research efforts. You want to know that the company is valuing those efforts, and people trust Paul.”
Madden called working through the bigger issues “gut wrenching.” And it’s not unique to Qualcomm: How do innovative companies deal with an industry that is growing far less dramatically than it did a couple of decades ago? “Should we continue to do groundbreaking work on new things or should we focus on deriving new products from the technology we have already, to focus on profitability?” Madden asked rhetorically about Qualcomm’s dilemma. “That’s the culture shock Qualcomm is going through now. It’s struggling to make the decision institutionally.”
The bottom line is that Jacobs’ play for Qualcomm is tenuous because, even if he gains control of Qualcomm, he may want to pursue a strategy that doesn’t match today’s reality. And that could turn off possible investors. “Any plan to take over Qualcomm and to continue spending on futuristic R&D projects would an uphill battle right now,” Madden noted.