Qualcomm, the world's top vendor of processors for mobile devices, reportedly is negotiating to buy rival NXP Semiconductors in a deal that would accelerate Qualcomm's expansion into such areas as automotive technology and continue the years-long consolidation trend in the chip industry.
According to the Wall Street Journal, the deal could be worth more than $30 billion, and could be announced in the next two to three months. Citing unnamed sources familiar with the situation, the news site said a deal for NXP could fall through and Qualcomm is looking at other options.
Such a deal could be a good fit for Qualcomm, which had made its name selling ARM-based, low-power systems-on-a-chip (SoCs) to top-tier smartphone and tablet makers. However, as the tablet market has tumbled in recent quarters and smartphone shipments slow as the market has matured, Qualcomm officials have been turning their attention to emerging growth areas, including autonomous vehicles, drones, virtual reality and the internet of things (IoT).
The company this week announced it was adapting its go-to-market strategy to address the complex and highly fragmented IoT industry. Qualcomm traditionally has sold its products to a handful of top-tier device makers—such as Samsung and Apple—that had large volumes of products to sell. With its new Snapdragon 410E and 600E embedded SoCs, the company is now using distributors to more easily move silicon products to the wide array of smaller companies making IoT devices.
NXP doesn't sell SoCs into the smartphone and tablet markets. Instead, it is strong in such areas as automotive technologies—which is a fast-growing part of the market, due in large part to the interest in self-driving cars—microcontrollers and identification cards. Bringing the company into the fold would rapidly expand Qualcomm's capabilities in a range of new markets.
Officials from both Qualcomm and NXP have declined to comment on the report.
A deal would continue what has been a rapid series of acquisitions in the semiconductor industry as chip makers look to increase their presence in fast-growing emerging markets and reduce their dependency on slowing spaces like PCs and mobile devices. In recent years, the industry has seen Intel buy field-programmable gate array (FPGA) vendor Altera for $16.7 billion, while Avago Technologies acquired Broadcom for $37 billion, and then took the Broadcom name. Cypress Semiconductor this year bought Broadcom's IoT chip business for $550 million.
NXP bought Freescale Semiconductor for $12 billion last year—a move that established NXP's dominance in automotive technologies—Renesas Electronics boosted its connected car capabilities through its acquisition this year of Intersil for $3.2 billion, and Softbank is buying ARM for $32 billion.
Qualcomm would enter the deal from a strong financial position. The company has a unique business model of having two entities—one that sells chips and drives revenues and another that licenses patents and contributes more than half the company's profits. Qualcomm at the end of its third fiscal quarter had $31 billion in cash and securities. During the three months that ended in June, Qualcomm generated $6 billion in revenue, a 4 percent year-to-year jump, and had net income of $1.4 billion, a 22 percent improvement.
For its partner, NXP officials in July reported quarterly revenue of $2.37 billion, a 57 percent increase from the same period last year, with a profit of almost $1.2 billion.
Buying NXP would continue what has been an interesting couple of years for Qualcomm. The company ran into controversy at the end of 2014 when Samsung decided not to use Qualcomm's Snapdragon 810 SoC in its upcoming Galaxy S6 smartphone because of overheating issues. Qualcomm quickly rebounded later in 2015 with the Snapdragon 820, a custom designed ARM-based chip—the 810 used an off-the-shelf ARM CPU design—with a range of high-performance accelerators like GPUs and digital signal processors (DSPs).
Around the same time, Qualcomm settled a lengthy antitrust investigation in China by paying a $975 million fine. In addition, the company, which saw revenues fall following the 810 issue, unveiled a restructuring plan that included cutting 15 percent of the workforce to help save $1.4 billion in annual expenses, and also pushed back on pressure from activist investor Jana Partners that was Qualcomm officials to split the company in two, creating a single vendor for its chip business and another one for its patent licensing efforts.
Qualcomm officials decided the company would work better as a single, united entity.