Qualcomm to Pay $47 Billion for Chip Maker NXP

The deal will create a combined vendor with $35 billion in revenue that will be better able to compete with Intel in IoT and automotive technology.

Qualcomm

Qualcomm is buying rival chip maker NXP Semiconductors in a $47 billion bid to rapidly expand beyond its core mobile device space and challenge Intel in such important emerging markets as the internet of things.

After weeks of speculation, Qualcomm and NXP officials on Oct. 27 announced the largest deal in the chip space, surpassing the $37 billion that Avago Technologies paid for Broadcom late last year and continuing a years-long consolidation trend in the processor market. The move will create a combined company with annual revenues of about $35 billion, serviceable addressable markets of $138 billion predicted for 2020 and strong positions in such areas as mobile devices, automotive technology, the internet of things (IoT), security, radio-frequency technologies and networking, officials said.

Some reports had said that both Intel and Texas Instruments had expressed interest in NXP but that Qualcomm was the leading suitor.

Qualcomm already is the world's largest provider of systems-on-a-chip (SoCs) for such mobile devices such as smartphones and tablets, but company officials for more than a year have been pushing the chip maker into new areas, including the IoT, autonomous vehicles, drones and servers.

"The NXP acquisition accelerates our strategy to extend our leading mobile technology into robust new opportunities, where we will be well-positioned to lead by delivering integrated semiconductor solutions at scale," Qualcomm CEO Steve Mollenkopf said in a statement. "By joining Qualcomm's leading SoC capabilities and technology road map with NXP's leading industry sales channels and positions in automotive, security and IoT, we will be even better positioned to empower customers and consumers to realize all the benefits of the intelligently connected world."

With NXP in the fold, Qualcomm will compete even more fiercely with Intel as the two companies push to become the indispensable chip maker for organizations looking to build everything from self-driving cars down to the smallest IoT device, and to the networks and data centers that will power an increasingly connected and digital world. Qualcomm is developing 64-bit ARM-based chips for servers to challenge Intel's dominant position in the data center.

Much like Intel's situation with a global PC market that has been contracting for several years, Qualcomm is beginning to see smartphone sales slow as many markets mature and tablet revenues tumble. Shifting to emerging growth markets makes a lot of sense, and an area like the IoT could prove to be a boon for Qualcomm and other chip makers. Qualcomm already has made moves in that direction, including with its $2.5 billion acquisition of British chip maker CSR in 2014.

"A billion smartphones is great, but tens of billions of IoT things is really great," Patrick Moorhead, principal analyst with Moor Insights and Strategy, told eWEEK earlier this month.

In an email to eWEEK after the deal was announced, Moorhead said that the merger would be good for both companies.

"Qualcomm is a giant in smartphone and tablet SoCs, modems and WiFi," he wrote. "NXP is a giant in low-power analog, [near-field communications], Bluetooth, low-end IoT SoCs and automotive. ... Merging operations will take time after the close [of the deal], but the good news is there's little overlap, which should make it easier than other mergers and acquisitions."

Qualcomm is making a significant bet on NXP. The chip maker is paying $110 per share for the Dutch firm, and the $47 billion is much higher than the reported $34 billion valuation NXP had the day before the deal was announced. The boards of directors for both companies have unanimously approved the deal. It's expected to close by the end of 2017.

It's the latest move by a chip maker to buy a rival in order to build out its capabilities. Among the higher-profile acquisitions are Intel's $16.7 billion deal to buy Altera and its field-programmable gate array (FPGA) capabilities, Renesas Electronics' $3.2 billion acquisition of Intersil for greater traction in the IoT and Cypress Semiconductor buying Broadcom's IoT business for $550 million. In addition, tech vendor Softbank is buying ARM for $32 billion.

NXP also has been part of the consolidation push, buying Freescale Semiconductor for $12 billion in 2015, a move that created a company with more than $10 billion in annual revenues.

According to Qualcomm officials, there are myriad advantages to the NXP deal beyond the increased strength in IoT, mobile, automotive and networking technology. The companies will be able to combine customer relationships and distribution channels, have more R&D capabilities, and have financial benefits that include $500 million in annualized run-rate cost synergies within two years after the deal closes.

"We have taken significant action to build a foundation for profitable growth, and the acquisition of NXP is strongly aligned with our strategy," Qualcomm's Mollenkopf said. "Our companies both have substantial expertise in delivering industry-leading solutions to our global customers, built upon a shared commitment to technology innovation, focused R&D investments, and strong financial and operational discipline."

Editor's note: This story was updated with new comments by Moor Insights analyst Patrick Moorhead.