Broadcom Ltd.’s plan to buy Qualcomm Inc. would have far-reaching implications for the electronics market.
Consider the impact on the iPhone. The Apple Inc. device is so dependent on chips made by the companies, as well as parts from another chipmaker Qualcomm is trying to acquire, that removing the components would leave you with little more than a very expensive iPod.
In the new iPhone X, Qualcomm chips make it possible to connect with cellular networks, and Broadcom parts ensure the device can detect the cell signals while also enabling new wireless charging features. Also crammed in there are modules to handle mobile payments made by NXP Semiconductors NV, which Qualcomm is in the process of acquiring for $47 billion.
If everything goes as Broadcom plans, the three suppliers would all come together to create one of the world’s largest chipmakers. A deal between Broadcom and Qualcomm would be the biggest ever in the technology business, concentrating immense power over the supply chain for smartphones that would ripple through the electronics industry.
Broadcom’s $70-a-share offer for Qualcomm values the biggest maker of chips used in mobile phones at about $105 billion. Qualcomm is likely to push back against what it sees as a low-ball bid, people with knowledge of boardroom discussions have said. It won’t deter Broadcom from proceeding with a direct appeal to shareholders, said a person familiar with the company’s plans.
Hock Tan, president and chief executive officer of Broadcom, propelled his company into a Top 10 chipmaker through a string of acquisitions, and he shows no signs of stopping. Broadcom is currently trying to close a purchase of Brocade Communications Systems Inc., which is facing regulatory resistance. At an event with President Donald Trump last week, Tan said Broadcom will move its headquarters to the U.S. from Singapore, an overture seemingly designed to appease officials and facilitate more acquisitions. Meanwhile, Qualcomm is seeking approval for the purchase of Netherlands-based NXP.
Tan’s intentions with Qualcomm are even more ambitious. Based on 2016 revenue, the enlarged company would be the world’s third-largest chipmaker behind Intel Corp. and nearly overtaking Samsung Electronics Co. Broadcom alone generated $15.5 billion of worldwide chip sales last year, which totaled $337 billion, according to researcher IDC Corp.
Broadcom’s chief said he’s pursuing Qualcomm because the company’s standing in the industry is unique and important to the future. Tan’s acquisition targets “justify themselves on sheer technology and sheer ability to add value to the customer,” he said in an interview.
A deal would combine two of the biggest providers of Wi-Fi chips, ubiquitous technology for accessing the internet. Qualcomm has a nearly 40 percent share of the market for smartphone processors and cellular modems, both essential components for building a phone. Combining that with Broadcom’s expertise would create a company well-suited to take a leading role in fifth-generation wireless and networking technology, known as 5G. “You’d have a 5G powerhouse,” said Mike Walkley, an analyst at Canaccord Genuity Group Inc.
The chip industry has been consolidating rapidly in the last few years, leaving electronics makers to deal with fewer suppliers for key components. Since 2012, the 10 largest chipmakers have accounted for more than half of sales. Partly as a response, Apple, Microsoft Corp., Amazon.com Inc. and Google have all begun developing their own chips in-house. Such efforts don’t come cheap. Just designing one can take years, require hundreds of highly paid engineers and cost tens of millions of dollars.
Apple has made the most progress of any gadget brand in deploying its custom-made chips into products. Even so, Apple relies heavily on outsiders. In the iPhone 8, Broadcom, Qualcomm and NXP account for about a third of chip costs, according to market researcher IHS Inc.
The three chipmakers have overlapping ambitions beyond smartphones. Qualcomm hopes NXP can kick-start an entree into autonomous-driving technology. Qualcomm would leverage the connections it has with automakers as the largest provider of cellular modems in cars. Broadcom is in vehicles, too. It sells radio chips, fiber optics and sensors, and hopes to expand the business.
Data centers are another target as Facebook, Amazon and Google keep building them. Broadcom is the main provider of the semiconductors that handle the flow of information between computers on networks. Qualcomm will soon sell its first server processors to challenge Intel’s lock on that market.
Given the immense size of the deal, regulatory approval will be complex, especially if customers campaign against it. Before the acquisition proposal, Apple accused Qualcomm of abusing a monopoly position in a set of lawsuits that aim to reduce what the gadget maker must pay for patent licenses.
Broadcom’s Tan said he has a good relationship with their joint customers. Apple is the biggest buyer of Broadcom products, according to Bloomberg’s supply chain analysis.
Tan is focused on developing another relationship -- with Trump. He and Qualcomm’s chief are each spending some quality time with the president. Tan palled around with Trump in the Oval Office last week, and Qualcomm CEO Steve Mollenkopf is taking part in the president’s trade mission to China this month. Having an ally at the top may help further their agendas.
Consider the impact on the iPhone. The Apple Inc. device is so dependent on chips made by the companies, as well as parts from another chipmaker Qualcomm is trying to acquire, that removing the components would leave you with little more than a very expensive iPod.
In the new iPhone X, Qualcomm chips make it possible to connect with cellular networks, and Broadcom parts ensure the device can detect the cell signals while also enabling new wireless charging features. Also crammed in there are modules to handle mobile payments made by NXP Semiconductors NV, which Qualcomm is in the process of acquiring for $47 billion.
If everything goes as Broadcom plans, the three suppliers would all come together to create one of the world’s largest chipmakers. A deal between Broadcom and Qualcomm would be the biggest ever in the technology business, concentrating immense power over the supply chain for smartphones that would ripple through the electronics industry.
Broadcom’s $70-a-share offer for Qualcomm values the biggest maker of chips used in mobile phones at about $105 billion. Qualcomm is likely to push back against what it sees as a low-ball bid, people with knowledge of boardroom discussions have said. It won’t deter Broadcom from proceeding with a direct appeal to shareholders, said a person familiar with the company’s plans.
Hock Tan, president and chief executive officer of Broadcom, propelled his company into a Top 10 chipmaker through a string of acquisitions, and he shows no signs of stopping. Broadcom is currently trying to close a purchase of Brocade Communications Systems Inc., which is facing regulatory resistance. At an event with President Donald Trump last week, Tan said Broadcom will move its headquarters to the U.S. from Singapore, an overture seemingly designed to appease officials and facilitate more acquisitions. Meanwhile, Qualcomm is seeking approval for the purchase of Netherlands-based NXP.
Tan’s intentions with Qualcomm are even more ambitious. Based on 2016 revenue, the enlarged company would be the world’s third-largest chipmaker behind Intel Corp. and nearly overtaking Samsung Electronics Co. Broadcom alone generated $15.5 billion of worldwide chip sales last year, which totaled $337 billion, according to researcher IDC Corp.
Broadcom’s chief said he’s pursuing Qualcomm because the company’s standing in the industry is unique and important to the future. Tan’s acquisition targets “justify themselves on sheer technology and sheer ability to add value to the customer,” he said in an interview.
A deal would combine two of the biggest providers of Wi-Fi chips, ubiquitous technology for accessing the internet. Qualcomm has a nearly 40 percent share of the market for smartphone processors and cellular modems, both essential components for building a phone. Combining that with Broadcom’s expertise would create a company well-suited to take a leading role in fifth-generation wireless and networking technology, known as 5G. “You’d have a 5G powerhouse,” said Mike Walkley, an analyst at Canaccord Genuity Group Inc.
The chip industry has been consolidating rapidly in the last few years, leaving electronics makers to deal with fewer suppliers for key components. Since 2012, the 10 largest chipmakers have accounted for more than half of sales. Partly as a response, Apple, Microsoft Corp., Amazon.com Inc. and Google have all begun developing their own chips in-house. Such efforts don’t come cheap. Just designing one can take years, require hundreds of highly paid engineers and cost tens of millions of dollars.
Apple has made the most progress of any gadget brand in deploying its custom-made chips into products. Even so, Apple relies heavily on outsiders. In the iPhone 8, Broadcom, Qualcomm and NXP account for about a third of chip costs, according to market researcher IHS Inc.
The three chipmakers have overlapping ambitions beyond smartphones. Qualcomm hopes NXP can kick-start an entree into autonomous-driving technology. Qualcomm would leverage the connections it has with automakers as the largest provider of cellular modems in cars. Broadcom is in vehicles, too. It sells radio chips, fiber optics and sensors, and hopes to expand the business.
Data centers are another target as Facebook, Amazon and Google keep building them. Broadcom is the main provider of the semiconductors that handle the flow of information between computers on networks. Qualcomm will soon sell its first server processors to challenge Intel’s lock on that market.
Given the immense size of the deal, regulatory approval will be complex, especially if customers campaign against it. Before the acquisition proposal, Apple accused Qualcomm of abusing a monopoly position in a set of lawsuits that aim to reduce what the gadget maker must pay for patent licenses.
Broadcom’s Tan said he has a good relationship with their joint customers. Apple is the biggest buyer of Broadcom products, according to Bloomberg’s supply chain analysis.
Tan is focused on developing another relationship -- with Trump. He and Qualcomm’s chief are each spending some quality time with the president. Tan palled around with Trump in the Oval Office last week, and Qualcomm CEO Steve Mollenkopf is taking part in the president’s trade mission to China this month. Having an ally at the top may help further their agendas.