Broadcom Ltd made a $121 billion “best and final offer” today (06/02/2018) to acquire Qualcomm Inc, ratcheting up pressure on its U.S. semiconductor peer to engage in talks on what would be the biggest ever technology acquisition. Under Broadcom’s “best and final” offer, Qualcomm shareholders will receive $82 a share — $60 in cash and the remainder in stock — compared to the $70-per-share deal they were offered in November.
As far as takeovers go this one’s hostile enough to enjoy with popcorn. Broadcom is angling to buy Qualcomm in time for the impending 5G rollout and is now declaring itself all-in on a boardroom buyout. The takeover battle is at the heart of a race to consolidate the wireless technology equipment sector, as smartphone makers such as Apple Inc and Samsung Electronics Co Ltd use their market dominance to negotiate down chip prices.
Why Broadcom want to buy Qualcomm?
Like Qualcomm, Broadcom is a semiconductor company that manufactures chips and computer components that support smartphones, laptops, data centers, set-top boxes, game consoles, and more. The company also manufactures LEDs, displays, and network / Bluetooth adaptors. Broadcom is considered a rival to Qualcomm; according to Fortune, Qualcomm reports a $22 billion annual sales revenue compared to Broadcom’s $18 billion. In 2016, it was ranked the fifth largest semiconductor vendor in the world by revenue, led by Intel, Samsung Electronics, and Qualcomm as the top three. Broadcom first moved into the top 10 list in 2010; at the time, Qualcomm was ranked ninth.
Why Microsoft and Google would object?
Microsoft and Google are both worried about Broadcom’s history of cutting costs instead of investing in innovation. Broadcom, the company recently merged with Avago Technologies, has a long history of acquiring smaller chipmakers and focusing on the development of less capital-intensive analog chips.
Microsoft is currently partnered with Qualcomm in the development of Windows 10 PCs, which are powered by Qualcomm’s ARM-based chipsets. That move could expand Windows’ presence beyond x86 CPUs, and pave the way for the development of more ARM-powered tablets and 2-in-1 devices. If Broadcom buys Qualcomm and scales back this partnership, it could affect Microsoft’s plans.
As for Google, the vast majority of its Android devices are powered by Qualcomm’s Snapdragon SoCs. Google benefits from Qualcomm’s big R&D investments in new chips, since they help top-tier Android devices compete against Apple’s latest iPhones, which run on its own ARM-based A series chipsets. If Broadcom cuts Qualcomm’s R&D spend, its chipsets could fall behind and widen the performance gap between Android and iOS devices.
Both Microsoft and Google are also concerned that Broadcom would dial back Qualcomm’s investments in 5G networks, which would hamper the development of next-gen mobile devices.
How would a Broadcom buyout help Apple?
Broadcom, like Qualcomm, is a major Apple supplier. Broadcom supplies wireless charging chips, power amplifier modules, and touch screen controllers in Apple’s latest iPhones. Qualcomm supplies the baseband modems.
Apple and Qualcomm are currently embroiled in a massive legal dispute regarding unpaid exclusivity rebates and licensing payments. Apple is suing Qualcomm in the US and China, and refuses to pay Qualcomm any more licensing fees. In turn, Qualcomm sued Apple’s contract manufacturers, and is attempting to convince regulators to ban iPhone sales in China.
But if Broadcom buys Qualcomm, it might work out a deal with Apple to mutually drop all that litigation. Apple probably doesn’t want to engage Broadcom in court, and Broadcom probably doesn’t want to lose Apple’s orders to other chipmakers. Since Broadcom would gain Qualcomm’s components and its massive portfolio of wireless patents, it could offer Apple a bundle “sweetheart” deal which could generate long-term returns for Broadcom and lower manufacturing costs for Apple.
Moreover, if Broadcom acquires Qualcomm after the latter’s planned takeover of NXP Semiconductors goes through, Broadcom would become the biggest automotive chipmaker in the world — and a valuable partner for Apple’s secretive self-driving plans.