Qualcomm is under pressure from Jana Partners, an activist investor, to consider breaking up its chipmaking and patent royalty businesses as a way to boost flagging shareholder value.

In a quarterly letter to its investors, cited by The Wall Street Journal (WSJ), Jana also called on Qualcomm to cut costs, accelerate stock buybacks, revamp its executive-pay structure, review financial reporting and indeed make changes to the board of directors.

The US chipmaker, at least publically, responded diplomatically to Jana’s proposals.

“Qualcomm welcomes input from our investors and has a track record of active engagement with stockholders,” said a company spokeswoman, quoted by WSJ. “The board and management team will continue to consider actions that are in the best interests of all stockholders.”

When the chips are down
The majority of Qualcomm’s profit comes from patent royalties, but Jana maintained the company needed to do more to exploit its strong position in the chip market.

The investor fund, which has a $2 billion stake in the company, said the chip business was essentially worthless at the company’s present market value.

Although Jana welcomed Qualcomm’s recent $15 billion share buy-back plan, as well as a hiking of the dividend, it argued it still wasn’t enough to excite investors.

It’s a view that CEO Steve Mollenkopf might well dispute.

At the time of the buyback and dividend announcement, the Qualcomm chief said “our business continues to generate substantial operating cash flow” and that the new plan “represents an important step in returning that cash to our owners while still preserving the strategic flexibility needed to drive stockholder value through growth”.

Jana executives and Qualcomm’s management, said WSJ, have held private discussions since late last year, which Jana described as “constructive” in its quarterly letter.

Under pressure
Qualcomm is nonetheless under competitive and regulatory pressures.

As well as facing cut-throat competition in China (which accounts for around half of Qualcomm’s revenue), the chipmaker suffered a blow when longstanding customer Samsung opted to use its own processor for the new Galaxy S6 rather than its latest snapdragon chip.

And shortly after Qualcomm was fined almost $1 billion by China’s antitrust regulator and agreed to modify its licensing practices, South Korea’s Fair Trade Commission reportedly launched an investigation into whether it had abused its dominant position there as well

Qualcomm was fined more than $200 million by the commission in 2009 for its anti-competitive behaviour.