Broadcom Explores Deal to Buy Chipmaker Qualcomm!

[count]

Chipmaker Broadcom exploring deal for Qualcomm: Bloomberg | Reuters

First of all, this makes a ton of sense for Broadcom, it would be great for shareholders of both companies. However, I would think there would be serious anti trust concerns here. The companies compete heavily in a number of markets, and the combination would create an absolute juggernaut in the SoC market, especially if the NXPI deal also goes through. Thoughts?

 

[Daniel Nenni]

Exciting times in the semiconductor industry! Representatives for Broadcom and Qualcomm declined to comment but the people who I know are quite excited about it. Except of course Qualcomm employees... But with systems companies building IC teams I seriously doubt that anyone will be unemployed for more than a minute or two.

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• Cash-and-stock bid of about $70 per share expected in days
• Broadcom offer would be biggest-ever takeover of a chipmaker

Broadcom Ltd. is considering a bid of more than $100 billion for Qualcomm Inc., according to people familiar with the matter, in what would be the biggest-ever takeover of a chipmaker.

Broadcom is speaking to advisers about the potential deal, said the people, who asked not to be identified because talks are private. The offer of about $70 a share would include cash and stock and is likely to be made in the coming days, the people said. A final decision on whether to proceed has not been made, they said.

Qualcomm shares rose as much as 19 percent in New York in their biggest move since October 2008. They traded up 12 percent at 2:23 p.m., valuing the company at $91 billion. Broadcom rose 4.7 percent, for a market valuation of $111 billion.

Broadcom Explores Deal to Buy Chipmaker Qualcomm - Bloomberg

 

[count]

Thanks for consolidating the thread

Yes, Hock Tan is also known as a cost cutter, so QCOM employees should rightly be concerned. I think it's very bad for competition and consumers, since Broadcom is also known for increasing prices. The company, in my opinion, is like the Valeant of the semiconductor industry (but with perhaps slightly better ethics), where they buy companies, eliminate R&D, cut spending to the bone, and escalate prices. Again, great for shareholders, not great for the semiconductor industry.

 

[Bernard Murphy]

Wonder what would happen to the NXP deal?

 

[Daniel Nenni]

Wonder what would happen to the NXP deal?

It will not get done.....

I saw Hock Tan in Taiwan last month for the TSMC 30th. He is an interesting man and clearly he knows how to turn a profit. Broadcom really was gutted. Hock is also into politics it seems:

Broadcom redomiciling to U.S. from Singapore | Reuters

 

[Bernard Murphy]

Must be getting something out of repatriation

 

[Daniel Nenni]

Chipmaker Marvell Technology in talks to buy Cavium: Wall Street Journal

I am hearing even more M&A rumblings.... it looks like we are heading for another mega M&A cycle....

(Reuters) - Marvell Technology Group Ltd is in advanced talks to buy Cavium Inc - a deal that would create a chipmaker worth about $14 billion, Wall Street Journal reported.

Cavium shareholders would receive a modest premium, the report said, citing people familiar with the matter. A deal could be announced in the next few weeks if talks do not fall apart.

Chipmaker Marvell Technology in talks to buy Cavium: Wall Street Journal | Reuters

 

[hist78]

It will not get done.....

I saw Hock Tan in Taiwan last month for the TSMC 30th. He is an interesting man and clearly he knows how to turn a profit. Broadcom really was gutted. Hock is also into politics it seems:

Broadcom redomiciling to U.S. from Singapore | Reuters

From reading the news about Broadcom redomiciling to US from Singapore, it's not that clear how much in it are real and how much in it are PR/propaganda.

"Our move would domicile our $20 billion annual revenue in the United States. From our base here, each year we will invest $3 billion in research and engineering and $6 billion in manufacturing, resulting in more high-paying tech jobs."

1. Broadcom trailing twelve months revenue is US$17 billion. So the the $20 billion annual revenue claim required a 20% growth. Will it happen in one year, two years, or 5 years? Are they going to get there through the natural growth or M&A?

2. I assume people understand the $3 billion research and engineering Broadcom talked about is their worldwide spending. It doesn't mean they will spend such amount in US alone.

3. I also assume people understand Boradcom is a fabless company who doesn't own and operate too many factory. Broadcom has and will contract out the manufacturing need to other contract manufacturers (TSMC, Samsung, GF, UMC, etc...). So the "$6 billion in manufacturing" is probably a great number to say in a news release but might not mean much to the United States' domestic manufacturing.

 

[Daniel Nenni]

I agree completely, it looks to be mostly PR which is why I said politics. I wonder what will be said when Hock Tan lays off thousands of QCOM employees? Not really a job creation type of guy.

From reading the news about Broadcom redomiciling to US from Singapore, it's not that clear how much in it are real and how much in it are PR/propaganda.

"Our move would domicile our $20 billion annual revenue in the United States. From our base here, each year we will invest $3 billion in research and engineering and $6 billion in manufacturing, resulting in more high-paying tech jobs."

1. Broadcom trailing twelve months revenue is US$17 billion. So the the $20 billion annual revenue claim required a 20% growth. Will it happen in one year, two years, or 5 years? Are they going to get there through the natural growth or M&A?

2. I assume people understand the $3 billion research and engineering Broadcom talked about is their worldwide spending. It doesn't mean they will spend such amount in US alone.

3. I also assume people understand Boradcom is a fabless company who doesn't own and operate too many factory. Broadcom has and will contract out the manufacturing need to other contract manufacturers (TSMC, Samsung, GF, UMC, etc...). So the "$6 billion in manufacturing" is probably a great number to say in a news release but might not mean much to the United States' domestic manufacturing.

 

[Nokokara]

Even if Broadcom does not enter in the equation, given the current regulations hurdles (EU investigations still on hold for months (June) despite recent latest Qualcomm concessions on NXP IP...) and the significant price up, well above their current 110$/share that Qualcomm will have to concede to reverse the constant decrease of NXP shares tendered to their offer (currently as low as 3.6% vs the 80% targeted to close the deal...), NXP acquisition by Qualcomm is anyway far from being a done deal (even already dead ?)...

 

[JeffreyHF]

Chipmaker Broadcom exploring deal for Qualcomm: Bloomberg | Reuters

First of all, this makes a ton of sense for Broadcom, it would be great for shareholders of both companies. However, I would think there would be serious anti trust concerns here. The companies compete heavily in a number of markets, and the combination would create an absolute juggernaut in the SoC market, especially if the NXPI deal also goes through. Thoughts?

There's no way under the sun that Qualcomm management and the institutional shareholders would ever accept a "take under" at $70. It would take around $85-$90 to get even any interest, on the financial side only.

AVGO is far less profitable than QCOM, even with the artificial suppression of QTL metrics caused by the "litigation put" on the stock, and zero being temporarily paid in royalties by the contract manufacturers as to Apple products (only).

While Wall Street has in this frothy market rewarded AVGO with a high market cap and ludicrous GAAP P/E, in fact Hock Tan's business is a highly leveraged, debt laden house of cards.

With NXPI acquired, QCOM stock will rise into the 60's on its own, notwithstanding the Apple attack. On that front, it will be interesting to see whether QCT refuses to sell Apple anything but legacy silicon next year, and instead obtain injunctions prohibiting Apple from using silicon from Intel with what may well be misappropriated software and source code. I predict it will be QCT breaking up with Apple, not visa versa. We'll find out how long it takes Intel and Apple to create a new wheel, that doesn't utilize QCT's source code and proprietary IP. By leaking to the press on Monday that Qualcomm would be designed out of next year's iProducts, and claiming QCT wrongfully refused to provide software testing tools for same. Apple (and Intel) opened Pandora's box, and have put the entire Apple outsized mobile fortune at risk. I'd love to be involved in the Discovery phase of this newly filed Superior Court breach of software agreement case.

Back to AVGO's bid to buy QCOM on the cheap, it simply will not happen.

 

[raghu78]

It makes no sense for a smaller company like Broadcomm to acquire a larger company like Qualcomm. Broadcom Limited had revenues of USD 13.24 billion against Qualcomm revenues of USD 23.55 billion.

Qualcomm - Wikipedia
Broadcom Limited - Wikipedia

Qualcomm are better off just focussing on their business and trying to resolve the various anti trust cases filed against them around the world. Qualcomm will definitely not settle with Apple and if their claims are proven true in a court of law then Apple is in serious trouble. IP theft is a serious crime.

Qualcomm opens up on Apple in a legal filing - SemiAccurate

 

[Daniel Nenni]

It's official:

Broadcom Proposes to Acquire Qualcomm for $70.00 per Share in Cash and Stock in Transaction Valued at $130 Billion.

Broadcom Proposal Stands Whether Qualcomm's Pending Acquisition of NXP is Consummated on the Currently Disclosed Terms of $110 per Share or the NXP Transaction is Terminated.

Broadcom and Qualcomm, Including NXP, Will Have Pro Forma Fiscal 2017 Revenues of Approximately $51 Billion and EBITDA of Approximately $23 Billion

Including Synergies Delivers Immediate, Substantial and Compelling Premium for Qualcomm Stockholders

Silver Lake Partners Provides $5 Billion Convertible Debt Financing Commitment Letter to Support Transaction

 

[count]

My thoughts:

1. $70 really undervalues Qualcomm. The share price is currently depressed by the spat with Apple, which will get resolved one way or another.
2. The regulator regime in the US is favorable to getting this done, especially given Hock Tans overtures to the current administration, but the EU not so much. I would think EU antitrust regulators would try to step in. NXPI/Qualcomm was a much smaller deal and it is bogged down by the EU right now.
3. This is bad for customers. I would think the handset makers would want to fight this. The leverage that a combined Broadcom/Qualcomm has over the mobile sector is huge. And if NXPI also gets absorbed... well they will basically own the mobile SoC space.

 

[ChrisGar]

I believe Avago was slightly smaller (revenue / year) than LSIL before that purchase. Then Avago was significantly smaller than Broadcom. May not be obvious -- but there is a history of a smaller company buying a larger one.

Broadcom has reputation for doing this acquisitions well. It would be interesting to know how many of the job cuts were in areas like HR which may make sense ... vs. engineering/product development.

 

[Chipper]

What does this all of say about either 5G/IoT or Moore's Law? Is QCOM of value due to IP they have related to 5G at any level? Or conversely does this imply a change in the comms landscape that lowers the value of their IP beyond price squabbles with AAPL? My suspicion is the latter. On the Moore's Law front does this mean an IP land grab for existing assets by a few large players because the future cash flows from existing products look more secure than those from future as node progress slows to a halt? This makes grabbing existing IP a better bet. Then concentrating the market allows them to price gouge into the future. It smells like and end game.

 

[count]

What does this all of say about either 5G/IoT or Moore's Law? Is QCOM of value due to IP they have related to 5G at any level? Or conversely does this imply a change in the comms landscape that lowers the value of their IP beyond price squabbles with AAPL? My suspicion is the latter. On the Moore's Law front does this mean an IP land grab for existing assets by a few large players because the future cash flows from existing products look more secure than those from future as node progress slows to a halt? This makes grabbing existing IP a better bet. Then concentrating the market allows them to price gouge into the future. It smells like and end game.

You are wrongly assuming that this acquisition is strategic in nature. The only strategy that Broadcom has is to buy franchise assets, cut costs, and raise prices. That's the entire game plan. Qualcomm has franchise assets, plenty of room for cost cuts and, once consolidated with Broadcom, significant pricing power.

 

[Daniel Nenni]

I spoke with a friend from QCOM. An internal memo went around saying it ain't gonna happen... Now it is getting interesting. I'm wondering how Apple feels about it? It was fun to see the QCOM CEO, Broadcom CEO, and the Apple COO sitting onstage together at the TSMC Event last month. Plenty of spacing in the group picture!

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I see this as yet another distraction for QCOM execs making it even harder for the rank in file to get things done...

 

[grahamjhay]

Lets see: Apple + Avago have what appears to be a good working relationship. Apple over the past 9-12 months have done their best to bring QCOM to their knees, suing them and questioning the legitimacy of their business model. Along come AVGO with a take-under offer of $70. In the background, Apple are waiting in the wings to lead a consortium (AAPL/GOOGL/Sammy/Huawei... ) to acquire QTL, which makes Apple's royalty problem go away. In return AVGO get the #1 slot in the iPhone, and Apple no longer require Intel's inferior modem product. Its a classic sting... Hollywood style! INTC perhaps have the most to lose if Apple's royalty problem goes away, i.e. they lose their only modem customer, while QCT's gross margin in the mid 40's could be 60%+ manufactured in Intel's fab's. I would find it strange if Intel were not drawn into this situation and contemplate the cost of someone else acquiring QCOM - could still spin QTL, and put themselves in pole position in wireless, with lots of margin accretion by internalizing production.

 

[count]

Lets see: Apple + Avago have what appears to be a good working relationship. Apple over the past 9-12 months have done their best to bring QCOM to their knees, suing them and questioning the legitimacy of their business model. Along come AVGO with a take-under offer of $70. In the background, Apple are waiting in the wings to lead a consortium (AAPL/GOOGL/Sammy/Huawei... ) to acquire QTL, which makes Apple's royalty problem go away. In return AVGO get the #1 slot in the iPhone, and Apple no longer require Intel's inferior modem product. Its a classic sting... Hollywood style! INTC perhaps have the most to lose if Apple's royalty problem goes away, i.e. they lose their only modem customer, while QCT's gross margin in the mid 40's could be 60%+ manufactured in Intel's fab's. I would find it strange if Intel were not drawn into this situation and contemplate the cost of someone else acquiring QCOM - could still spin QTL, and put themselves in pole position in wireless, with lots of margin accretion by internalizing production.

Now THIS is an interesting theory. I was also thinking about how AVGO would come up with the $100b+ to close the deal but financing from Apple and pals would make it possible.