Qualcomm plans to cut roughly 15 percent of its workforce, about 4,700 workers, the San Diego chip maker said Wednesday as it struggles to return to growth in a maturing smartphone market.

Qualcomm will trim $1.4 billion from its $7.3 billion in annual expenses once all the cuts are made.

Other cost cutting includes “streamlining the engineering organization, reducing the number of offices and increasing the mix of resources in lower-cost regions,” the company said. The cost savings are expected to be spread out over the next year or so.

“We are going to do some changes to how we are doing things and where we are putting employees,” said Chief Executive Steve Mollenkopf in a conference call with Wall Street analysts.


“I think you are looking at a case where we have had some significant growth,” he continued. “We are now trying to react to what is happening in the industry and get ahead of it. I think we will be healthier as a result.”

The belt tightening includes a $300 million reduction in annual share-based compensation. In the past, Qualcomm has granted restricted stock to not only executives but also to many of its employees.

Qualcomm also will review its corporate structure. Activist investor Jana Partners has pressured Qualcomm to consider splitting its chip business – which produces most of its revenue – from its wireless technology licensing arm – which generates most of its profits.

Jana, which became a major Qualcomm shareholder earlier this year, argues that Qualcomm’s chip and licensing divisions would be worth more to shareholders as stand-alone companies. Many of the sweeping changes that Jana called for in an April letter to Qualcomm were adopted by the company on Wednesday.


“I was very pleased with the extent of the response to what the activist shareholders asked for,” said Steve Re of Quality Growth Management, a Rancho Santa Fe investment firm. “It’s a recognition of a much tougher market, and they are going to have to get tough.”

After growing fast for five years, Qualcomm has stumbled this year. It has been hurt by slower growth in Android smartphone sales, government investigations, the loss of a key chip in Samsung’s latest flagship smartphone and increased competition – particularly in 4G LTE technology.

So far this calendar year, Qualcomm’s shares have plunged 16 percent. Sales for its fiscal third quarter were $5.8 billion, down from $6.8 billion for the same quarter last year.

Net income for the quarter came in at $1.2 billion, or 73 cents per share. That compares with net income of $2.23 billion, or $1.31 per share, a year earlier under generally accepted accounting principles.


Its forecast for the current fiscal fourth quarter was worse. Qualcomm expects sales of around $5.3 billion – down from $6.7 billion a year earlier. Earnings per share are forecast to decline well over 35 percent.

“The industry in which they are playing looks like it’s shifting hard, and they have been caught by surprise quarter after quarter,” said Stacy Rasgon, an analyst with Bernstein Research. “They’ve been in denial. This time they don’t seem to be in denial anymore.”

The company is reducing investments outside of its core chip and licensing business. It will focus on growing in data centers, small cells and certain Internet of Things technologies going forward. The company expects to still spend $4 billion annually in research and development.

“The actions we are taking today are designed to ensure that we are properly structured to seize these opportunities while delivering improved near-term performance,” said Mollenkopf.


Qualcomm is shaking up its long-tenured board of directors, which Jana Partners called for in April. New board members are Palo Alto Networks’ CEO Mark McLaughlin and Tony Vinciquerra, a senior adviser to Texas Pacific Group. Both will join immediately. Vinciquerra was a Motorola board member when that company split off its mobile phone/set top box business from the main company.

Existing Qualcomm board members Gen. Brent Scowcroft and Duane Nelles have retired. Sir Donald Cruickshank will not stand for re-election in 2016.

The company reached a standstill agreement with Jana Partners in conjunction with the change in Qualcomm’s board make up. “We support the bold steps the board and management are pursuing to enhance stockholder value and are pleased to have worked constructively with them in this endeavor,” said Barry Rosenstein, managing partner of Jana Partners, in a statement.

Qualcomm has explored splitting its chip business from its licensing business before. The company will hire outside consultants this time to help with this current review. No decisions have been made. It expects to report results by year end.


“The review is really a fresh look,” said Qualcomm President Derek Aberle in an interview. “Everybody is going into it with an open mind. It’s important to understand that.”

A key question for Qualcomm is how does it return to growth, particularly amid signs of slower sales growth in the smartphone market.

Apple is doing well. Its latest iPhones continue to gain market share. But that hurts Android phone makers, many of which are Qualcomm customers.

Moreover, Samsung dropped Qualcomm’s Snapdragon processor from its Galaxy S6 phones in favor of its own, in-house chips. Qualcomm hopes to win Samsung back as a customer for the next generation of Galaxy phone, but it’s unclear whether it will be successful.


Qualcomm said the job cuts — which were more than the 10 percent analysts had been expecting — would be conducted over time. The cuts are likely to impact San Diego. The company employs 31,000 worldwide, including 15,000 locally. The numbers include temporary and part time workers.

Qualcomm released financial results after markets closed. Its shares ended trading at $64.19 on the Nasdaq exchange. They fell 84 cents to $63.35 in after-hours trading.