While Qualcomm makes an absurd amount of money designing and selling its own chips, over half of its profits come from selling its wireless patents to nearly every smartphone maker in the world not looking for a lawsuit. That profit proportion would likely change if the company were to acquire NXP as is rumored in media discussions.
Chip makers driving M&A in 2012016 and Qualcomm wants in on the action
The Wall Street Journal is citing unnamed sources suggesting that Qualcomm is looking at purchasing NXP Semiconductors in a deal that is believed to be worth over $30 billion and could be completed in a matter of a few months.
At the same time, Qualcomm is also exploring other deals according to the same sources. That said, Qualcomm is likely to be looking at foreign companies and NXP Semiconductors certainly fits the bill. Qualcomm showed around $31 billion in securities and cash on its balance sheet in the beginning of the summer (June) and most of that money is held offshore. It would behoove the company in an election year to look to utilize its treasure trove when repatriation of corporate wealth isn’t really on the menu at present.
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2016 has seen about $75 billion in mergers and acquisitions this year after big moves from Avago Technologies as well as Intel last year.
In July, SoftBank bought ARM Holdings PLC for $32 billion and even NXP got in on the action with an acquisition of its own in 2015 when it purchased Freescale Semiconductors for nearly $12 billion.
Why would Qualcomm purchase the Dutch NXP?
Beyond putting its offshore holdings to use, Qualcomm would start its immediate move into industries outside of mobile devices nearly overnight. The company wouldn’t be selling its thirty odd product lines anymore but would see its lines instantly in the low hundreds and would become the leader in supplying the automotive industry with its chips if the deal were to go through.
If you read the news even a little bit, you’ll know that the automotive industry’s use of advanced chips shows zero sign of abating but rather its growth is near guaranteed as long as people continue to drive.
“Many investors at least believe they would like to see the company do something more strategic,” wrote Sanford C. Bernstein analysts just today as rumors seemingly moved closer to reality.