Broadcom Bid for Qualcomm Carries Risks for Mobile Industry Innovation

NEWS ANALYSIS: Qualcomm silicon can be found in virtually every smartphone sold in the U.S. which is the main reason why Broadcom is willing to pay $105 billion to buy the company.

Broadcom-Qualcomm Deal

There's little reason to wonder why Qualcomm might be worth $105 billion to Broadcom. That's because there is no doubt that your smartphone is using technology from Qualcomm.

You've probably heard about the company’s Snapdragon processors that power most of the Android phones out there. But Qualcomm also makes the chips that handle the communications for most manufacturers' smartphones and it has patents that get license fees from the rest.

This fact clearly was not lost on Broadcom, another networking company that’s deeply involved in mobile communications, notably in WiFi chips as well as mobile processors.

The synergies are clear enough that Broadcom is proposing making Qualcomm its latest takeover target if antitrust regulators are willing to approve the deal. However, Qualcomm is reportedly not thrilled with Broadcom's bid, saying that it undervalues the company.

The $70 per share that Broadcom is offering is a significant premium over what Qualcomm is currently trading for, but it’s close to parity when compared with the stock price a year ago. Since then Qualcomm has been hammered by lawsuits, examined by regulators and is in the midst of losing Apple as a customer. These events are depressing Qualcomm’s stock price.

Apple is a big worry for Qualcomm since the company has moved to Intel for the modems it needs to reach cellular networks. The company’s patents still apply to the Intel chips, but here Apple is fighting back, saying that Qualcomm’s licensing fees are unreasonable.

Meanwhile, the mobile device industry in looking toward a future without an independent Qualcomm, which may or may not be good news. On one hand, if Broadcom's buyout bid is successful, it’s not clear what the future course of Qualcomm and its products will be. On the other, there’s hope that Broadcom will be more reasonable when it comes to license fees.

But for the mobile industry there’s a lot more going on than modem suppliers and license fees. Apple, for example, has already begun the process of leaving Qualcomm behind completely, although it's unclear how it can buy or build the mobile processors it needs without paying license fees to Qualcomm.

Apple is already suing about the size of the licensing fees. But it’s safe to assume that the move to Intel modems will put a crimp in Qualcomm’s license revenue. But it also appears to be likely that Apple will begin making its own communications chips fairly soon, and if possible it will find a way that doesn’t depend on Qualcomm’s licenses.

Then there’s Samsung. Like Apple, Samsung can make its own chips even though it currently uses Qualcomm’s Snapdragon processors for phones it sells in the U.S. However, like Apple, Samsung also has its own line of processors, such as the Exynos systems that the company uses in its Galaxy S8 phones sold outside the U.S., where they don’t need to support CDMA networks.

Wayne Rash

Wayne Rash

Wayne Rash is a freelance writer and editor with a 35 year history covering technology. He’s a frequent speaker on business, technology issues and enterprise computing. He covers Washington and...