NXP, which only relatively recently had concluded the takeover of its rival Freescale, has now itself been swallowed by a much larger competitor. Qualcomm ranks number four in the world semiconductor market, NXP was even after the Freescale takeover not one of the world’s top ten chipmakers. The combined enterprise will achieve sales above $30 billion, and the takeover will activate synergies in the range of $500 milion, Qualcomm said.
The expertise of both companies is widely complementary. For instance, NXP holds strong market positions in security devices for payment systems, the Internet of Things and automotive-specific semiconductor solutions whereas Qualcomm is a leading provider of chips for the smartphone industry – an area where NXP never really was successful. There are several examples where the complementary expertise of both partners could significantly improve the combined company’s market position. For example, Qualcomm’s product range in smartphone SoCs and mobile phone modems (3G, 4G, and probably soon 5G) can be leveraged to establish NFC and eSE mobile payment solutions. Likewise, NXP’s strength in the market for secure ID, payment cards and public transportation solutions will certainly help Qualcomm to position itself in this area by combining NXPs solutions with its own computing and connectivity platforms.
However, the strongest effect of the takeover will be seen in the automotive chip market. The Freescale takeover already catapulted NXP to the pole position in this particular market segment where Qualcomm so far was never a leading player, at least it was not among the ten largest chip providers for the car industry. Nevertheless, Qualcomm built up significant expertise in seminal areas like wireless charging (for cars as well as for smartphones), computer vision, machine learning, and sensor fusion. The move enables the combined company to make a big leap forward in areas like Advanced Driver Assistance Systems, automotive connectivity and eventually autonomous driving. In this market, the combined company will have the appearance of the new 500-pound gorilla. It is difficult to tell which competitor will be hit hardest by the takeover, but one certainly is not wrong to believe that in particular STMicroelectronics and Texas Instruments, in the automotive market currently ranking number four and five, should have reason for concern. In particular TI’s product portfolio in the areas of automotive electronics and IoT is positioned to compete head-on with the newborn heavyweight. Renesas and Infineon, currently number two and three in the automotive segment, will also have to dress warmly, albeit at a lesser extend. Renesas because its product portfolio in the automotive segment is focusing more on the head unit and infotainment segments where its position probably is strong enough to withstand the intensified competition. Infineon has another unbeatable advantage – it is very strong in the market segment of power electronics. Qualcomm and NXP both have not more than a blind spot at this region of the semiconductor market.
How strongly the move will change Qualcomm’s profile can be seen by its revenue distribution. Currently, Qualcomm achieves only 8% of its sales in the automotive sector, rendering the company a remote contender in this competitive market. After the takeover, this share of the company’s revenue will rise to 29% and be the second largest segment (after Mobile Products with 48%).
Many thought leaders and analysts call the connected car “the largest smartphone available”. Given this view is correct – and there is little reason that this is not the case – the combination of Qualcomm and NXP is absolutely right under strategic aspects. The move will certainly will leave deep traces in the semiconductor industry.