Qualcomm Reportedly Seals Deal To Buy NXP Semiconductors

[Daniel Nenni]

It is pretty funny how this was not kept secret, insider trading issues and all:

After a weekslong courtship, Qualcomm (QCOM) reportedly is set to marry NXP Semiconductors (NXPI).

San Diego-based Qualcomm has reached an agreement to acquire Dutch chipmaker NXP for about $110 a share in cash, CNBC reporter David Faber said Friday. Other details are still being negotiated, he said. The deal would value NXP at roughly $37 billion. Reuters also reported that a deal has been reached. By the closing bell Friday, Qualcomm shares added 0.9% to 67.93 on the stock market today. NXP stock, however, dropped 2.7% to 101.71.

Qualcomm Reportedly Seals Deal To Buy NXP Semiconductors | Stock News & Stock Market Analysis - IBD

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While most of the mainstream media views the QCOM / NXP acquisition talks as a positive, to which I agree because I’m a big fan of disruption, let’s talk about the possible negatives of this mega acquisition.

First and foremost, NXP (NXPI $35B Market Cap) is an old school European analog semiconductor company that is still working on their mega acquisition of another old school Semiconductor company Freescale. QCOM on the other hand is the equivalent of a millennial semiconductor company. NXP has fabs all over the world (Hamburg, Germany, Manchester, United Kingdom, Chandler, Arizona and (2) in Austin, Texas, Nijmegen, Netherlands, and Singapore). QCOM ($99B Market Cap) on the other hand is the epitome of a fabless semiconductor company.

Really, the only thing QCOM and NXP have in common is debt and the combination of the two plus acquisition financing is a VERY large boat anchor ($30B?) for a once fabless semiconductor innovator.

A much better cultural fit for an NXP acquisition is another old school semiconductor company Texas Instruments (TXN $70B Market Cap), the #1 analog chip supplier with 15 fabs in 9 different countries. It is also interesting to note that current NXP CEO, Rick Clemmer, is a TI alum (former Senior Vice President and Semiconductor Group CFO). NXP Board Chairman Sir Peter Bonfield is also ex TI. The combination of TI and NXP would be a dominant $10B analog semiconductor company.

Analog Supplier Revenue Ranking (Semiconductor Intelligence, 2016 forecasted)

1. TI ($8.3B)
2. ADI ($2,9B)
3. Infineon ($2.7B)
4. Skyworks ($2.6B)
5. STMicro ($2.5B)
6. Maxim ($2B)
7. NXP ($2B)
8. ON Semi ($1.4B)
9. Renasas ($1.2B)
10. Mediatek ($.8B)

Another better cultural fit for NXP would be a merger with On Semiconductor given the shared history of Freescale (acquired by NXP in 2015) and ON Semiconductor (6 fabs). ON Semiconductor is a 1999 spin-off of Motorola Semiconductor and Freescale is also a spin-off of Motorola (2004). Combined they would be a strong #2 challenger to TI.

There are of course strong QCOM / NXP product and market synergies (mobile, IoT, and automotive) that can be discussed in more detail but one final thing to consider is, if not NXP, what acquisitions should QCOM be considering?

Xilinx (XLNX $13B Market Cap - Programmable Logic) and Mellanox (MLNX $2B Market Cap - Ethernet and InfiniBand) would be an easy place to start the discussion if QCOM is serious about the multi-billion dollar data center business. Millennial fabless semiconductor company NVIDIA (NVDA $36B Market Cap – HPC, GPU, AI, VR, Automotive) would be another potential acquisition if QCOM is set on a market expanding $30B+ mega acquisition.

My guess is that QCOM will chop up NXP and part it out. The fabs can go to TI or ON Semi etc.... The NXP employee LinkedIn profiles are already being updated and shopped around, absolutely.

 

[Arthur Hanson]

The fabless model will win for efficiency of capital and utilization of equipment. The effective life/half life of equipment and knowledge is constantly shrinking at an ever accelerating rate that requires an also an ever changing mind set. This also applies to the human resources and culture. It is these characteristics that give the Silicon Valley an unparalleled ability to tackle the world as challenges to be met and not problems that are to difficult to deal with and solve until after much damage has been done. The best action for government to take is to get out of the way and allow the Silicon Valley culture to flourish. Let capital and people flow as needed and keep an open mind as to the results.

 

[Eric Esteve]

This NXP acquisition by Qualcomm sounds positive as both chip-makers are complementary: NXP is strong in Automotive and IoT and has give up on Wireless mobile long time ago, when QCOM is still a strong player in mobile. Moreover, Qualcomm has to find new segments to compensate the sales decline in Mobile, but it can take long time to penetrate automotive... buying is a good option in this case.
Interesting side effect: NXP is the first microcontroller vendor who has decided to move to FD-SOI. We may see NXP becoming a trojan horse, leading to (partial) adoption of FD-SOI at Qualcomm...

 

[philippelambinet]

NXP is much less "old school" than people think. Rick Clemmer has done an outstanding job pruning the portfolio, closing fabs and refocusing on sectors where NXP can build a strong leadership. Qualcomm and NXP have several things in common. First, they both have a razor sharp market focus and a clear understanding that in today's and tomorrow's markets there is only one viable position, it's #1 or nothing. Second, they share a clear understanding that security is key. Interestingly enough, Smartcards were invented in Europe and NXP, Infineon and ST master this technology while no US company has been able (interested?) to play. With the emergence of IoT, security becomes a key opportunity and Qualcomm needs this technology. NXP is therefore a good target. Look at NXP website. It says "Secure connections for a smarter world". Doesn't that fit well with Qualcomm?
What happened a few days ago with IoT edge devices being used to launch massive DDoS attacks is vindicating this acquisition. Timing could not have been better.
In fact, Daniel, thinking about NXP as an "old school" semiconductor company is a bit "old school", don't you think ;-)

 

[Roger]

Spot on Philippe. "Secure connections for a smarter wireless world"