Broadcom’s share price rose 5.5 percent, for a market valuation of about $112 billion but the prospect of the acquisition calls into question whether it would or would not include NXP, currently the subject of an agreed bid from Qualcomm.
Broadcom’s bid for Qualcomm – if it goes ahead – would be of record size for the semiconductor industry, and could create the third largest chip company, behind Samsung and Intel.
It also renews a rivalry that goes back many years. For most that time Qualcomm, under the leadership of the founding Jacobs family Qualcomm has had the upper hand. Now at a moment of weakness in Qualcomm’s history Broadcom Ltd. is preparing to make a bid of about $70 per share in cash and stock valuing Qualcomm at about $103 billion.
Qualcomm, as the developer of CDMA-based cellular communications, was able to exact stunning licensing deals as its technology was adopted for alongside the global adoption of digital cellular. Broadcom as an expert in networking and high-speed communications ICs represented the cable- and copper-based old guard.
However, with a number of authorities plucking up the courage to call out Qualcomm on its licensing practices; and disputes with key customers in mobile, including Apple, Qualcomm’s star has been in the descendent over the last 12 months. Its stock has fallen from about $68 in the last year. That falling stock price has not helped it conclude a deal to buy NXP Semiconductors NV (Eindhoven, The Netherlands). The offer was made in 2016 but is yet to complete due to regulatory scrutiny in Europe and opposition from some shareholders (see Qualcomm must raise offer or abandon pursuit of NXP).
Next: Always acquisitive
Broadcom has always been an eager acquirer and contributed to the dotcom boom. In 2016 Broadcom Ltd., based in Singapore, was created when Avago Technologies Ltd. (Singapore) acquired Broadcom Corp. However Broadcom Ltd. announced on November 2 that it will redomicile to the United States. It said it would do this with or without US corporate tax reform.
Although Broadcomm now counts itself as a vendor of chips for wired, wireless, enterprise storage, and industrial end markets, it still would benefit greatly from embracing and driving 5G wireless technology something in which Qualcomm is an acknowledged leader. Similarly Qualcomm over-focused on mobile phone markets, hence its appetite to acquire NXP and gain markets for its wireless technology in automotive and industrial applications.
The record-breaking scale of the acquisition, would likely attract scrutiny from regulators partly because of its large share of the supply chain for both Wi-Fi modem and smartphone chips. Broadcom’s plan to move its headquarters to the US will not hurt its chances with US authorities.
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