Recently, Qualcomm Inc. (QCOM) announced that the company has signed a definitive agreement to sell its subsidiary Omnitracs Inc. to Vista Equity Partners, a U.S.-based private equity firm. Vista will pay $800 million in cash to purchase Omnitracs. The deal is expected to close by the fourth quarter of 2013 (first quarter of Qualcomm’s fiscal 2014) subject to customary regulatory approval.
Omnitracs manufactures chips and accessories to provide data and other systems for the transportation and logistics business. This business is popularly known as fleet management and telematics services.
Founded in late 1980s, Omnitracs is one of the initial business ventures of Qualcomm, which has had a successful run. In the mean time, Qualcomm has developed itself into a leading chipset manufacturer in the mobile handset segment. As a result, Omnitracs has become a non-core unit of the company.
Divestment of Omnitracs will further strengthen the strong cash position of Qualcomm. Injection of $800 million will raise the company’s cash and short-term marketable securities to more than $12 billion with no outstanding debt - a highly secured position. Qualcomm currently has a Zacks Rank #3 (Hold).
Qualcomm is a major chipset supplier to Samsung, which is currently the largest seller of smartphones globally. Additionally, the company is a major chipset supplier to Apple Inc. (AAPL) for its popular iPhones. Furthermore, Google Inc. (GOOG) has decided to use Snapdragon processor for its latest Nexus 7 tablets. Qualcomm has also been favored by the Windows 8 operating system of Microsoft Corp. (MSFT). We believe that the company will continue to perform well buoyed by significant surge in the demand for smartphones and tablets.
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