Photo of Yuang Yuang, Bank of America Merrill Lynch and Jane Liu, Qualcomm (Shanghai) Co., Ltd.

Chipmaker Qualcomm’s growth in China led to the need for it to upgrade its cash management operations. A multi-pronged approach to the challenge resulted in centralisation of cash held, streamlining of its cash repatriation process and a new, fully digital solution for stock option payments.

Qualcomm sees cash management upgrade deliver on its many promises

The challenge

As Qualcomm’s business in China grew, it was clear to the chip maker’s global and China treasury team that there was scope for a significant upgrade in cash management in China with the aim of improving visibility of, returns from, and access to, corporate cash.

The first step was to start centralising the cash held across the Qualcomm subsidiaries in China to help increase investment returns. Next came the requirement to support cash needs from other Qualcomm subsidiaries out of China when necessary, followed by the final requirement of the cash management upgrade, the need to simplify stock option payments, which had previously been handled by a Chinese bank and a manual process.

The solution

Cash centralisation was achieved by establishing an RMB-denominated pool in Shanghai, giving head office greater visibility of cash and allowing it to reduce the level of operating cash in the pool to generate better investment returns on the excess cash.

With regards to supporting cash needs from other Qualcomm entities out of China, the Qualcomm treasury team worked closely with Bank of America Merrill Lynch (BofAML) to implement a cross-border loan solution, with lending from four different China-based entities in Beijing and Shanghai on the same day.

The loan took just one week to arrange after obtaining regulatory approval, including account opening, FX and final payment – described by one banker as ‘something of a record’.

With help from BofAML, Qualcomm also introduced a new solution for stock option payments which took the whole process online and paperless.

Best practice and innovation

Every stage of the Qualcomm cash management upgrade has shown best practice in dealing with the sometimes complex world of treasury in China. Examples include:

• Visibility and return enhancement: the China cash pool offers fully automatic, zero-balance sweeping on a daily basis and gives head office online visibility into its cash position. Cash rich entities can directly support the funding needs of cash deficit entities reducing the reliance on external funding for working capital.
• Implementation excellence and cross-border mobility: when other Qualcomm subsidiaries out of China require urgent internal funding support, the Qualcomm treasury team, together with the partner bank, is able to complete the solution design, regulator communication and approval process, and deal execution swiftly to enable rapid transfer of cash to the related QC subsidiaries.
• Process optimisation and control enhancement: the new solution for stock options was a slow manual process and by moving it online, the processing speed was increased with lesser strain on resources, resulting in significant reduction in errors. The payment process was streamlined and potential inherent compliance risks were eliminated.

Key benefits

The single biggest benefit Qualcomm achieved is greater visibility of, return on, and access to the cash it holds in China. Every part of the solution has delivered incremental benefits:

• The cash pooling solution has increased investment returns and lowered the daily cash balance, provided working capital and reduced the need for bank borrowing by subsidiaries.
• The cross-border loan has met cash needs from other Qualcomm subsidiaries out of China and the fact that it has been cleared with the regulator acts as a model for future transactions, giving Qualcomm an excellent solution to achieve cross-border mobility.
• The stock options solution replaced the manual paper-based process with a fully online paperless process. What was previously a large number of FX conversion transactions have been replaced with RMB payments which can be handled by straight through processing. Benefits include headcount reduction, process optimisation, payment efficiency improvement and control enhancement.