Qualcomm eyes $30B acquisition of NXP Semiconductors

Qualcomm Inc. is reportedly discussing the possibility of acquiring NXP Semiconductors NV, a deal that would mark one of the biggest chip acquisitions this year while also dramatically remaking Qualcomm.

The deal, which could be valued above $30 billion given NXP's roughly $28 billion market value, could be struck in the next two to three months, if it happens at all. The Wall Street Journal first reported the news (sub. req.) citing unnamed sources, but even if those sources are authoritative, these prospective deals don't always come through.

Still, the deal would align with the direction of the industry. The semiconductor market has been rapidly consolidating as chip makers look for ways to cope with slower growth recently. The Journal noted that NXP itself acquired another semiconductor firm, Freescale Semiconductor Ltd., last year.

Indeed, the number of chip deals this year has already exceeded $75 billion, according to the Journal.

For Qualcomm's part, the deal would substantially reshape the San Diego-based company, which has a market value of $93 billion. It would expand Qualcomm's chip business from dozens of major product lines to hundreds, and would instantly make the company the premier supplier of chips used in cars.

Not to mention that the deal could add 30 percent to Qualcomm's earnings before any cost savings, according to Sanford C. Bernstein analysts, the Journal wrote.

Qualcomm may be looking for a way to shake up business after a recent slowdown in smartphone growth. The company makes a large part of its profits from wireless patents, causing the trend to have a major impact.

And that wasn't the only recent bad news for Qualcomm. Earlier this month, Apple confirmed that Intel would be supplying almost half of its baseband chips for the iPhone 7, breaking a hold that Qualcomm had maintained almost exclusively so far.

Will Strauss, president and principal analyst at Forward Concepts, said that NXP would be a good target to expand beyond the wireless handset market.

"It is obvious that Qualcomm is seeking to expand into markets beyond cellphones and there has been speculation about what acquisition would make sense for the San Diego-based company," Strauss wrote in a recent newsletter. "Eindhoven-based NXP would be an appropriate target because it has a very broad product portfolio which could broaden Qualcomm’s market coverage."

Sanford C. Bernstein analysts noted that many stockholders were looking for the company to pull off an acquisition like NXP in order to respond to the recent trends.

“Many investors at least believe they would like to see the company do something more strategic,” they wrote of Qualcomm, according to the Journal.

The NXP acquisitions stands to fulfill that request. It would be the largest acquisition in Qualcomm's history, and dramatically increase the company's head count: It currently has about 33,000 employees, and NXP has around 45,000, according to public filings.

NXP is based in Eindhoven in the Netherlands, and specializes in chips for automotive systems, ID cards and transit cards. It was founded more than 60 years ago, and became the number one supplier of chips used in cars after it acquired Freescale.

Because much of Qualcomm's cash and security was held offshore, the fact that NXP is a foreign company will likely play in its favor, according to the Journal.

This article was updated September 30 to include the comment from Will Strauss.

For more:
- read the Wall Street Journal article (sub. req.)

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