What Lies Ahead For Qualcomm As U.S. Blocks Broadcom’s Takeover Attempt?

by Trefis Team
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On Monday, the Trump administration issued an order blocking Broadcom’s $117 billion hostile bid for rival Qualcomm  (NASDAQ:QCOM) on national security grounds, in a move that could effectively end the Singapore-headquartered Broadcom’s pursuit of the U.S. communications technology giant. Below we take a look at why the deal fell through and what it could mean for Qualcomm going forward.

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

Why Is The U.S. Opposed To The Deal? 

Qualcomm has a wide range of tech expertise, ranging from communications standards to semiconductors, and the U.S. government is likely of the view that a sale of Qualcomm could weaken the U.S’s. standing in the wireless communication space, in which China has been increasingly investing. For instance, Qualcomm is viewed as being ahead of the curve in the development of next-generation 5G wireless technology, and the U.S. government likely thinks that ceding control to Broadcom could allow Chinese companies such as Huawei to become leaders in this crucial space going forward. There are also concerns that Broadcom could scale back research and development spending at Qualcomm, given its track record of aggressive cost-cutting.

Can The Deal Still Go Through? 

Broadcom was working to move its headquarters to the U.S., making itself an American company for legal purposes. While Qualcomm could go to court after shifting its headquarters, effectively challenging the national security aspect of the case, the deal would still be subject to oversight from the U.S. Department of Justice, which could oppose it on anti-trust grounds. This seems likely, given that the Federal government appears to be strongly opposed to the deal, as the Presidential order states that the two companies should “permanently abandon the proposed takeover.”

Where Does Qualcomm Go From Here?

While Qualcomm’s business faces multiple challenges, considering its litigation over royalty payments with Apple and stagnant sales of smartphones, there is a possibility that the outlook for the company could pick up, even if the takeover attempt by Broadcom falls through. Firstly, the company is currently in the process of acquiring NXP Semiconductors, in a move which could give it exposure to fast-growing areas in the semiconductor market, including the Internet of Things and automotive semiconductors.  This could change the narrative around the stock, which has been underperforming over the last few years. Additionally, Qualcomm has also been focusing on protecting its licensing business. Earlier this year, the company signed an agreement with Samsung, which would see the Korean behemoth withdraw its support for regulatory actions Qualcomm faces in South Korea and other jurisdictions.

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