Cellphone chip supplier Qualcomm Inc is changing its internal structure to protect its technology licensing business by creating a new subsidiary that will work on open source wireless developments.
The biggest developer of cellphone chips also derives a huge amount of its revenue from selling licenses for use of its vast portfolio of technology patents to companies such as cellphone makers whether or not they use Qualcomm chips.
The restructuring comes at a time when the wireless industry is beset with litigation related to technology patents.
Under the new structure, Qualcomm Inc as the parent company, will include its technology licensing division and corporate functions as well as most of its patent portfolio. Qualcomm Technologies Inc (QTI), the new subsidiary, will include its research and development arm and its wireless chip business.
Qualcomm said it needed to make the change to protect its patent licensing business because its new subsidiary QTI plans to increase its work with open source software. Open source projects typically involve the sharing of technology with the broader development community.
While the parent company will keep most of Qualcomm's patents, QTI will hold some patents that are specifically developed to provide open source software contributions.
Bernstein analyst Stacy Rasgon said the move should not worry shareholders as it would not change Qualcomm's finances. He saw it as a forward looking effort to protect the patent business which generates a much higher profit margin than Qualcomm's chip business.
"If they do see a risk that their patents could leak out as part of their open source efforts obviously this is good," Rasgon said.
Under the new structure, QTI will have no rights to grant licenses held by the parent company, Qualcomm said.
Qualcomm said the restructuring was not aimed at spinning out either its chip business or its licensing business and nor was it in response to any third party actions.
The company said the restructuring, which will be completed during the first fiscal quarter of 2013, will not change the way it reports its financial results.
Qualcomm shares were down $1.01 or 1.83 percent at $53.90 in afternoon trade on Nasdaq.
(Reporting by Supantha Mukherjee in Bangalore and Sinead Carew in New York; Editing by Joyjeet Das, Sofina Mirza-Reid and Bernard Orr)