Qualcomm Inc., the world’s biggest maker of cellphone chips, unexpectedly named chief operating officer Steve Mollenkopf as chief executive on Friday following speculation that he might be poached to run Microsoft Corp.
The replacement of current CEO Paul Jacobs, the 51-year-old son of a Qualcomm co-founder, was prompted by concerns that Microsoft might hire Mollenkopf to succeed retiring CEO Steve Ballmer, said a source at one of the companies who was not authorized to discuss the issue publicly.
On Thursday, Bloomberg News reported that Microsoft has been considering Mollenkopf as a candidate for CEO.
“If he really was being courted by Microsoft, he would have been an awesome CEO,” said FBR analyst Chris Rolland. “But Qualcomm didn’t want to lose him, and it makes sense to me.”
“If I were the son of a founder of a $130-billion company, I would want to make sure I have the top guy behind me – and Steve is definitely that guy,” Rolland said.
Mollenkopf, 44, will take the reins in March, as Qualcomm faces a shift in smartphone growth away from the United States toward China, where it faces an antitrust investigation and where consumers often spend less on their phones.
Removing Mollenkopf from the shortlist of CEO candidates at Microsoft could complicate matters for the struggling software company’s board.
Jacobs, who replaced his father Irwin as Qualcomm CEO in 2005, will serve as executive chairman and focus on developing new technology and long-term opportunities, the company said.
“Paul is a visionary guy and Mollenkopf really knows how to run things. So I think this division of labour makes a ton of sense, although it’s a little earlier than I would have expected,” said Bernstein analyst Stacy Rasgon.
Under Jacobs, Qualcomm, founded in 1985, has become the top chip supplier for smartphones and its stock value has surpassed that of Intel Corp. Intel is still the world’s largest chip maker by revenue but is struggling to gain a foothold in mobile.
Investors have been urging Qualcomm to give back more of its profits, and last month Jacobs promised to return three-quarters of its free cashflow to shareholders.
Mollenkopf, an engineer, led Qualcomm’s $3.1-billion (U.S.) acquisition of radio frequency chip maker Atheros Communications Inc. in 2011, its biggest acquisition. He will replace Jacobs on March 4, after the annual shareholder meeting.
Under Jacobs’ leadership, the company’s share price has more than doubled, giving Qualcomm a market capitalization of more than $120-billion, while earnings have tripled. The Philadelphia SE Semiconductor Index has risen just over 20 per cent in the same period.
While most of Qualcomm’s revenue comes from chips that allow phones to communicate with carrier networks, most of its profit comes from licensing patents for its CDMA cellphone technology – a component in new fourth-generation mobile phones.
Mollenkopf focuses mostly on the semiconductor side of Qualcomm’s business.
“If anything, Mollenkopf in the lead means [an] intense commitment to the semi business,” said Argus Research analyst Jim Kelleher.
The antitrust investigation in China will be a key concern for the new CEO. China’s top economic planning agency has substantial evidence against Qualcomm, state media quoted a senior official as saying on Thursday.
Half of Qualcomm’s revenue comes from China, including Foxconn Technology Group, the assembler of most of the world’s top-selling electronic gadgets including Apple Inc.’s iPhone.
Most of the chips the company sells in China are used in devices that are exported. But domestic Chinese sales make up around a fifth of Qualcomm revenue and it is positioned to reap the vast majority of licensing fees for phone chips in the world’s biggest smartphone market.
Qualcomm denies any wrongdoing and says it is co-operating with the probe, which analysts say is likely tied to royalty negotiations ahead of the impending $16-billion roll-out of commercial fourth-generation services by China’s big telecoms carriers.