Last week, activist fund Jana Partners published a letter calling on Qualcomm to take several steps to improve shareholder value. (I know I am late in writing about this, but I literally have a note from my doctor with a pretty good excuse for tardiness.)

I do not want to wade into the whole subject of activist investors. I have lived on the front lines of both the ‘pro’ and ‘anti’ sides of shareholder activism, and it is far too nuanced to get into here.

So setting aside the big picture topic, I want to explore the specifics of Jana’s letter to Qualcomm. (I could not find an original source for the letter, the closest I have is this link from theStreet.com, someone let me know if I there is more that I am missing.)

Jana makes the argument that Qualcomm is undervalued relative to its importance in the mobile and computing industries. 100% agreement here, I have said repeatedly on this site, that no one seems to fully grasp how influential Qualcomm is over the mobile industry.

Jana then goes on to make six suggestions as to how Qualcomm can unlock that value. And this is where I start to see trouble. The big headline request Jana makes is for Qualcomm to spin off or sell its chip business (QCT), fully exposing the benefits of their IP Licensing business (QTL). This is a textbook ‘shareholder value’ move. And while it is often a very smart idea, I think Jana could not be more wrong in suggesting it here. These two businesses are joined at the hip, that is the secret to Qualcomm’s success.

Qualcomm’s model for the past decade (and probably the coming decade) is simple. The company works closely with the telecom operators, spending a lot on R&D to develop new features (and saving the operators the cost of having to do this themselves). The operators then vote these features into the mobile standards (aka 4G, LTE, 3GPP, etc.). Once the standard is set, the mobile handset vendors have to find chips that meet the standard, and who is the first company to offer those chips? Correct, the company that helped design the standard in the first place.  All the R&D that goes into supporting the new standard becomes intellectual property (IP) in the form of patents, and those patents are the basis of the company’s QTL business. The chips and the licenses are thoroughly intertwined.

Of course, there is a lot more complexity to this. Also, I have had to choose my words carefully here because this is one of those subjects, where if you stare at it too long, and squint a little you can start to see regulatory implications. This is going to make it hard for the company to defend itself. But it should be clear that the two businesses benefit from being together. It is also unclear what would happen to these two separate entities. Jana makes the suggestion that maybe Intel would buy a spun-off QCT. And I have to admit, that I laughed out loud when I read that part.

That being said, I actually agree with most of the rest of what Jana is proposing. Qualcomm is starting to show its size. Big companies all expose problems that come with time and age, but each in their own separate way. Having spent a lot of time in San Diego lately, I have a pretty clear idea of what particular form of sclerosis afflicts Qualcomm. There is something not right about their cost structure. Some of it comes from making some big bets – pushing process nodes, the $1 billion a year they are spending on ARM servers, etc. But they also have some serious organizational structure issues. I will not go into details here, but is pretty clear that the company is not staffed efficiently, and that they could greatly enhance ROI and time-to-market through some of the changes Jana touches on. There is ample room for improvement.

Qualcomm is an important, powerful company. It is not going away, and it does not need to split itself up. And maybe that is the problem. It is hard for big companies to undertake structural improvements, and doubly hard when the company sits in such a strong position competitively. Qualcomm could probably coast for a decade on its current position, but maybe having an outside agitator can spur the company to make real change.

Let me close by saying that I do not own any Qualcomm shares. I almost bought some after Mobile World Congress because the sell-side has gotten almost 100% negative on the name. I have hesitated because I am aware of all the cost and organizational problems I mention above. It just looks so messy when you get up close. Nonetheless, I think Jana is on to something here. While I disagree with some of their prescription, I agree pretty strongly with the overall diagnosis.