Qualcomm Acquires CSR To Accelerate Its Growth In IoT

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Last week, leading mobile chipmaker Qualcomm (NASDAQ:QCOM) agreed to buy UK based Cambridge Silicon Radio (CSR) for $2.5 billion. U.S. based chipmaker Microchip Technology made a bid for CSR in August this year, but the latter rejected it saying the offer was not enough. Qualcomm has agreed to pay 900 pence a share in cash for CSR, which represents a 56.5% premium on the share price before the start of the offer period.

CSR, which spun-off from Cambridge Consultant in 1998, is a pioneer in bluetooth technology for machine-to-machine communication. It is growing in areas like automotive and wearable devices. Its chips are used in products such as portable audio speakers and Apple-owned Beats headphones. Qualcomm believes that CSR’s leadership in Bluetooth, Bluetooth Smart and audio processing will strengthen its position in providing critical solutions for the Internet-of-Things (IoT) market.

IoT, which includes all the other computing devices apart from PCs, tablets and smartphones, is the next big wave in computing. Gartner estimates the market will grow by almost 30 times, from an installed base of 0.9 billion in 2009 to 26 billion by 2020. It will result in $1.9 trillion in global economic value-add through sales into diverse end markets. [1]

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Qualcomm is the No.1 mobile chipmaker in the world. The acquisition of CSR will complement its current offerings by adding products, channels, and customers in the important growth categories of IoT  and automotive infotainment, accelerating Qualcomm’s presence and path in these fast growing markets. In May 2014, Qualcomm agreed to acquire Wilocity, a maker of wireless HDMI connections, used to transmit video between computers and displays, and it developed AllJoyn, an open-source platform that allows devices to share information with other nearby devices.

Qualcomm believes that CSR’s highly advanced offering of connectivity technologies, and the strong track record of success it has in these areas, will unlock new opportunities for growth. Subject to regulatory approvals and assuming that there are no alternate bidders, Qualcomm expects the acquisition to close by late summer 2015.  The is expected as well to be accretive to non-GAAP earnings per share in fiscal 2016, the first full year of combined operations.

Our price estimate of $74 for Qualcomm (market cap of 125 billion) is only marginally lower than the current market price of $76 (market cap of $129 billion). We expect the company to report revenue of around $28 billion and net income of $7 billion for calendar year 2014. For fiscal year 2014 (ended September), we forecast non-GAAP diluted EPS of $5.14 as compared to market consensus of $5.31.

See our complete analysis for Qualcomm stock here

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Notes:
  1. Gartner Says the Internet of Things Installed Base Will Grow to 26 Billion Units By 2020, Gartner Newsroom, December 12, 2013 []