Why Qualcomm Raised Its Bid For NXP

by Trefis Team
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On Tuesday, Qualcomm (NYSE:QCOM) announced that it was increasing its bid for NXP Semiconductors by 16% to $127.50 per share, for a total consideration of about $44 billion, after mounting pressure from NXP shareholders and activist investors. The company also said that it received binding agreements from nine NXP stockholders, including activist investor Elliott Management, that collectively own more than 28% of NXP’s outstanding shares to support the deal (related: Will Qualcomm Sweeten Its Bid For NXP?). Closing the deal could help Qualcomm diversify its revenue streams beyond the saturating smartphone market, while potentially helping it to fend off a takeover by Broadcom.

We have a $63 price estimate for Qualcomm. View our interactive dashboard analysis on Qualcomm’s expected performance over 2018 to see our forecasts and valuation estimate for the company. You can modify any forecasts and estimates in order to come up with your own price estimate for the company.

NXP Will Drive Growth, Help Qualcomm Diversify Away From Smartphones 

Qualcomm has been facing headwinds on a few fronts. Its lucrative licensing unit – which has long been its cash cow – has been the subject of antitrust investigations in multiple jurisdictions, causing significant uncertainty. The company is also in the midst of a legal battle with its largest customer, Apple. Separately, the company’s chip business could also be impacted by a slowdown in the smartphone market. By closing the NXP deal, Qualcomm would be able to diversify its business away from the smartphone market towards other fast-growing areas such as the Internet of Things and automotive semiconductors. Automotive vendors have been packaging greater computing power in their cars, and the trend is likely to accelerate as autonomous vehicles become more mainstream. NXP, being the largest vendor of automotive semiconductors with a 14% market share, is likely to benefit significantly from this trend. Qualcomm has estimated that markets including automotive semiconductors, security, and internet-connected devices could be worth ~$77 billion by 2020.

Fending Off Broadcom’s Hostile Takeover Attempt 

There is a possibility that Broadcom’s unsolicited takeover bid of Qualcomm also compelled the chipmaker to raise its bid for NXP. Broadcom’s bid for Qualcomm had a condition that Qualcomm not raise its offer for NXP beyond $110 a share. While Broadcom’s CEO recently softened his position, indicating that the company would keep its options open, the developments could complicate matters for Broadcom. Additionally, if Qualcomm is able to close the deal with NXP, it could make a case to its shareholders that it does not need to be acquired by Broadcom to drive growth, considering NXPs exposure to several fast-expanding markets. The progress of Broadcom’s bid for Qualcomm faces its next test on March 6, when Qualcomm shareholders vote on a group of directors nominated by Broadcom.

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