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Qualcomm Laying Off 1,231 San Diego Employees As Part Of 'Cost Reduction Plan'

Visitors look at a display booth for Qualcomm at the Global Mobile Internet Conference (GMIC) in Beijing, Thursday, April 27, 2017.
Associated Press
Visitors look at a display booth for Qualcomm at the Global Mobile Internet Conference (GMIC) in Beijing, Thursday, April 27, 2017.
Qualcomm To Begin Round Of Layoffs As Part Of 'Cost Reduction Plan'
Qualcomm To Begin Round Of Layoffs As Part Of 'Cost Reduction Plan' GUEST:Nikhil Varaiya, professor of finance, San Diego State University

>>> I am Maureen Cavanaugh, it is Thursday, April 19. Our top story on Midday Edition, the threat of a broad, takeover has passed but the fallout continues that QUALCOMM. Officials have begun notifying employees of the layoffs. 1500 employees will be getting pink slips. That number and the location of the layoffs have not been confirmed. QUALCOMM headquarters in San Diego employs roughly 13,000 of the company's 33,000 workforce worldwide. The layoffs are part of QUALCOMM's attempt at two hit a higher per-share target for its investors which he promised during the battle with.com. Joining me is my kilt pariah. Professor, welcome to the program. If the takeover battle is over, why is QUALCOMM committed to raising shareholder returns ? >> For the last five years, QUALCOMM's talk has been flat. The shareholders have not received their expected return. I would say 75% of the stock is held by institutional investors. Those folks are in there because they want a return for those that invest in those institutions. The company is under pressure to increase returns. To benefit all of the shareholders in the company including station investors. >>> They are doing that by cutting cost ? >> There are two ways to improve returns increase revenues and increase cost or to do a combination of both. As a result of the takeover battle with broad calm, QUALCOMM promised to raise the earnings share significantly. They claim that without Broadcom they would be able to do so. They also promised that within a couple of years the stock price would rise about $80 a share roughly that was of the offer that was made by Broadcom and the numbers were about 90 $200 a share. QUALCOMM is in the 50s. It has a long way to travel. As a result, cost-cutting is one of the things that is part of the landscape. >>> There was a rumor that there was an effort by the member of the founding Jacobs family to remove the company from public trading and take it private. Is that possible? >> It would be a tough call because the price to take them private would be between 122 100 and $30 billion. Taking it private means yet the take it out of stock by about 125 billion and the question is how is the 125 billion to be funded. There will be investors to come in. You could involve the significant amount of debt that will also be obtained as a part of this $25 million requirement. More debt the company has, the more the company is constrained because that means the company has to pay off interest charges and principal payments on a periodic basis. The debt in these private equity deals tends to last about 4 to 5 years. The company is under enormous pressure to enhance cash flow to pay off the debt. >>> Recently there was a sigh of relief when the Trump administration stepped in to end the takeover battle citing national security concerns because the company's development of chips for next-generation 5G mobile communication was so important to the U.S. Now we see that the Broadcom hangover is threatening QUALCOMM in more ways than one. The growing trade war between the U.S. and China has already stopped lucrative exports for QUALCOMM. Could that be another reason for the layoffs ? >> No. I would say the layoff is in part related to the best improved earnings and the likelihood that licensing rates are not going to be as lucrative for QUALCOMM's technology as the past. That is the cost of the battle with Apple. I think this pressure also that licensing revenues would not grow as fast. As a result, they have to find other sources of revenue. I believe one of the sources of revenue was going to be the acquisition of the idea that SP where QUALCOMM can get into other markets. That acquisition is on hold because Broadcom is flexing their muscles with the hold. If held long that the acquisition may not go through and it could have other impacts that we are unsure of where it would end up here >>> Some people are looking at that and think okay the U.S. stepped in and saved QUALCOMM but now the trade policy could hurt the company in the long run. Do you agree? >> That is hard to say. I believe the trade war between the U.S. and China spends lots of -- spans lots of market and including accurate culture and steel. If the trade war intensifies everyone will get hurt in the process. The Chinese I do not anticipate will give Van. The U.S. wants to put pressure on them. At the end of the day, they will have to somehow each party has the save face and come up with ways around this. I think there is some validity to the claim that the Chinese are not opening up their markets unlike what we have done. That is going to change. I think. And the Chinese understanding of that. I think they will slowly allow that. I think a full-scale trade war between the two parties will not benefit anyone. I think the pressure will be on the U.S. government because of this trade war does go full-scale, agriculture will get hurt, companies using steel and aluminum will get hurt, and this will put pressure on various parties in Congress to put something -- do something about this. >>> I have been speaking with Professor to kill pariah Professor of San Diego State University thank you very much. >> Thank you for having me.

Qualcomm is laying off 1,231 San Diego employees and another 269 workers in Northern California as part of a $1 billion cost-cutting plan.

The size of the mass cutback was revealed through mandatory 60-day layoff notices received Thursday at the San Diego Workforce Partnership.

Qualcomm Warn Notice
Qualcomm layoff notice to the city of San Diego.
To view PDF files, download Acrobat Reader.

The cellular technology company alerted workers to the layoffs on Wednesday; they become effective June 19.

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Qualcomm's cost-cutting plan was part of an effort to prevent a hostile takeover by rival chip company Broadcom. The Trump administration blocked Broadcom's buyout, but lagging stock prices and poor financial performance have left investors worried.

The cuts nearly match in scope Qualcomm's last major restructuring in 2015, when the company laid off 1,315 San Diego employees.

Before Thursday's cuts, Qualcomm employed about 13,000 people in San Diego, as well as 33,800 globally.

“I would say the layoffs are in part related to the pressure to simply improve earnings,” said Nikhil Varaiya, professor of finance, San Diego State University. “Also, the likelihood that licensing rates are not going to be as lucrative for Qualcomm’s technology as in the past.”

In a statement, the company said it considered cost cuts to avoid layoffs, but "we concluded that a workforce reduction is needed to support long-term growth and success, which will ultimately benefit all of our stakeholders."

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Layoffs At Qualcomm

RELATED: What’s Next For Qualcomm Now That Broadcom’s Hostile Takeover Is No Longer An Option?

A statement provided to KPBS by a Qualcomm spokesperson said the following:

As part of the cost reduction plan announced in January, Qualcomm is conducting a reduction of our full-time and temporary workforce.

A workforce reduction, such as this one, affects not only those employees who are part of the reduction, but their families, co-workers and the community. We recognize this and have offered affected employees supportive severance packages to reduce the impact of this transition on them. We first evaluated non-headcount expense reductions, but we concluded that a workforce reduction is needed to support long-term growth and success, which will ultimately benefit all our stakeholders.