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For Qualcomm, 2017 started off with customer and competitor Apple filing a $1 billion lawsuit over the chip maker’s patent licensing practices around its baseband chips, a move that kicked of a year of an accelerating legal dispute between the two companies. As the new year approaches, it appears that Qualcomm not only will have to continue its legal battle with Apple, but also will have to contend with two possible multibillion-dollar deals that would have significant impacts on the company’s future and continue the rapid consolidation in the processor industry.
As the vendor continues its $38 billion pursuit of fellow chip maker NXP, it also is trying to fend off an unsolicited $105 billion bid by Broadcom that Qualcomm officials have already rejected. However, the pushback appears not to have diminished Broadcom’s the desire to bring Qualcomm into the fold.
In the meantime, Qualcomm is continuing its efforts to grow the reach of its Arm-based silicon products beyond mobile devices such as smartphones and tablets and into a broad array of new areas, from servers and PCs to augmented reality (AR), virtual reality (VR), the internet of things (IoT), artificial intelligence (AI) and automotive. On the technology side, Qualcomm is seeing some success, according to Rob Enderle, principal analyst with The Enderle Group.
“They are generally executing very well,” Enderle told eWEEK in an email. “On a rapid ramp to 5G, the big issues they are dealing with are largely externally-driven. The Apple/Intel litigation and Broadcom hostile acquisition attempt (which may be loosely connected) are currently beyond their control.
“Servers remain a long-term move and progress has been slow, their move to do PCs (always-connected PCs) looks to be gaining far more steam far more quickly. They have reasonably strong positions in AR/VR and appear to be out-executing Intel, who is typically the gold standard at the moment (Intel has had to back down or shut down a large number of failed efforts over the last year).”
Most recently, Qualcomm earlier this month launched its Snapdragon 845 mobile platform aimed at immersive multimedia applications and on-device AI capabilities. Company officials also announced an extended partnership with BlackBerry to build platforms for connected cars that will leverage BlackBerry’s QNX software and Qualcomm’s chip technologies, and outlined Qualcomm’s ambitions to drive the development of always-connected PCs, an effort that received the support of such companies as HP Inc., Advanced Micro Devices, Microsoft, Asus, Sprint, Samsung Electronics and Xiaomi.
However, those external issues will continue to dog the company as the calendar turns to 2018. Apple and Qualcomm continue to trade lawsuits and countersuits—in late November, Apple filed a countersuit against Qualcomm claiming patent infringements involving the chip maker’s mobile phone chipsets—while regulators around the world continue to turn wary eyes to Qualcomm’s patent licensing practices.
In addition, Qualcomm executives have to navigate their way through the acquisition issues that are before them. Qualcomm in October 2016 announced its intention to buy NXP, a move that would accelerate its efforts in such emerging areas as autonomous vehicles and the IoT, two markets that are drawing interest from most chip makers, including Intel. The deal would be a boon for the company, but it’s running into headwinds. European Union regulators have slowed the process, though they reportedly could approve the acquisition in the coming weeks after the chip maker made changes to its proposal.
At the same time, active investor Elliott Management, which now owns about 6 percent of NXP and is the company’s largest shareholder, is pushing Qualcomm to hike its offer. Elliott officials have argued that Qualcomm’s offer undervalues NXP and recently called for Qualcomm to hike the price from $110 a share to $135.
In a statement last week, Qualcomm officials said, “Elliott’s value assertion for NXP is unsupportable and is clearly nothing more than an attempt to advance its own self-serving agenda. We remain fully committed to closing the acquisition of NXP and believe that the agreed-upon price of $110 is full and fair.”
Qualcomm officials last week once again pushed out the deadline for buying up remaining shares of NXP to Jan. 12.
Enderle said that bringing NXP into the fold would allow the company “to build additional scale and cut down on competition, which should serve as a hedge against margin erosion. This is important but not critical to the company. Currently one of the large NXP investors is attempting to force Qualcomm to bid higher but runs the risk of Qualcomm walking away.”
While Qualcomm continues to pursue NXP, it also is trying to keep Broadcom at bay. Broadcom in November made its unsolicited bid in hopes of creating a combined company that would be able to challenge giant chip makers Intel and Samsung. Broadcom President and CEO Hock Tan told Qualcomm’s board of directors in a letter that he first approached Qualcomm EO Steve Mollenkopf about the merger idea more than a year ago.
A week after the $105 billion bid was made, Qualcomm’s directors rejected the proposal, saying it undervalues the company and doesn’t take into account Qualcomm’s broad presence in the IT industry. However, Broadcom officials indicated that the rejection wouldn’t end their pursuit, and earlier in December nominated a slate of directors to replace Qualcomm’s current board.
Qualcomm pushed back, pointing to a number of challenges such a deal would face, including regulatory hurdles, Broadcom’s financing capabilities and the uncertainty of Broadcom’s plans to move its headquarters from Singapore to the United States. Officials also note Qualcomm’s future plans.
“No company in the industry is better positioned than Qualcomm in mobile, IoT, automotive, edge computing and networking and to lead the transition to 5G,” Tom Horton, Qualcomm’s presiding director, said in a statement. “Qualcomm stockholders expect a Board that will support this innovation while evaluating objectively the full range of opportunities available to maximize value for all Qualcomm stockholders.”
Qualcomm’s directors on Dec. 22 announced they had decided not to nominate any of the 11 board candidates proposed by Broadcom, saying in a statement that all were “inherently conflicted” and that they “would not bring incremental skills or expertise to the Qualcomm Board.” Instead, Qualcomm’s board is nominating all 11 incumbent members.
“Qualcomm’s existing board has a deep understanding of the global IP/licensing and semiconductor business and relevant adjacent industries, and has overseen the design and execution of Qualcomm’s strategy, including driving its leadership in mobile, IoT, automotive, edge computing and networking, as well as the coming transition to 5G,” the directors said in the statement.
“Broadcom and [financial partner] Silver Lake are asking Qualcomm stockholders to turn over control of their company now to the hand-picked Broadcom-Silver Lake nominees based on a proposal that dramatically undervalues Qualcomm and is not actionable due to its significant regulatory uncertainty, which may not be resolved for 18 months, if ever, and lack of committed financing. Broadcom has made no commitments to resolve the serious regulatory issues inherent in its proposal.”
According to a report on CNBC, unnamed officials with Microsoft and Google also have voiced concerns about the deal, pointing to Apple’s possible influence in the deal and the reputation Broadcom has for cutting costs rather than investing in innovation.
Enderle, the analyst, voiced similar concerns.
“Broadcom acquiring Qualcomm would likely kill the company,” he said. “It appears to be an effort to buy [and] then gut the firm, killing much of the R&D that makes Qualcomm differentiated in the market. It isn’t well-funded either, suggesting it is more designed to distract Qualcomm than actually become a merger.
“It would cripple Qualcomm, and that would strengthen Apple significantly in the segment, which is why Google and Microsoft don’t support the move,” he said. “Either of these firms could, and might, step in as white knights to block the merger should it suddenly appear viable. It doesn’t at the moment.”