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Qualcomm Calls off Bid to Acquire NXP Semiconductors: a Setback…For Now


American chip manufacturer Qualcomm on Thursday abandoned its $44 billion bid to acquire Dutch firm NXP Semiconductors
The attempted merger failed when no official ruling was handed down by regulators in China, where both firms do substantial business

Although China did not formally reject the deal, antimonopoly authorities there dragged out the process for 20 months, eventually dooming the transaction

Chinese officials deny there’s a connection between the matter and the escalating US-China tariffs dispute
Our analysis: No new inroads for Qualcomm in automotive

Qualcomm’s failed bid carries a substantial $2 billion termination fee that the San Diego-based manufacturer will have to pay NXP.

More importantly, Qualcomm’s unsuccessful acquisition attempt effectively scuttles a prime opportunity for the US chipmaker to carve out a bigger and more influential presence in automotive, a space where NXP is a dominant player across the breadth of automotive applications.

Qualcomm’s defeat also means forfeiture of a considerable package of benefits, including the following:

A drive to higher revenue

A juggernaut in the semiconductor and patents-licensing businesses but a modest player in automotive, Qualcomm would have seen a big jump in automotive-derived revenue if the acquisition had been successful, given NXP’s leading position in the automotive supply chain.

According to the IHS Markit Competitive Landscape Tool (CLT) and the CLT –  Automotive Edition, Qualcomm’s automotive semiconductor revenue last year amounted to $300 million—about 7 percent of number-one NXP’s massive $4.4 billion total. Had the deal gone through, the acquisition would have resulted in $4.7 billion in combined revenues for the newly formed giant.

That merged entity, if it existed now, would easily sit at the pinnacle—far removed from Qualcomm’s ranking near the tail end of the top 50 four years ago.

Cost sharing

The acquisition would also have enabled the two entities to share the increasing cost of deploying advanced technology nodes—in this case, below 16-nanometer lithography—to stay competitive in the business. And through the merger, NXP would have been able to leverage Qualcomm’s scale from other industries.

Complementary product offerings

While both suppliers possess silicon solutions focused on infotainment and Advanced Driver Assistance Systems (ADAS), the product offerings from the two makers are complementary, reducing the potential for non-productive overlap because of redundancy or deviation.

The acquisition would have made for a good fit with future automotive applications, where chip components are set to enjoy double-digit growth and bring in significant revenue.

NXP’s strengths lie in software defined radio (SDR), near-field communications (NFC), cyber security, CMOS radar, processors, automotive functional safety, and wireless connectivity related to the Internet of Things (IoT).

Qualcomm, for its part, boasts a sizable footprint in 5G, artificial intelligence, vehicle-to-vehicle (V2V) and vehicle-to-infrastructure (V2I) technology, and wireless charging.

What if?

A merger between Qualcomm and NXP would have represented a union of two formidable players, each parlaying its own strengths, into a new frontier—in this case, a relatively unimpeded automotive world, driven by ubiquitous connectivity and a recurring need for high processing power.

Qualcomm has proven expertise in connectivity and artificial intelligence, while NXP is strong in reliability and quality standards required in automotive.

Until Qualcomm’s bid to acquire NXP, Qualcomm’s primary play in automotive was in selling wireless modems to automotive makers. NXP, on the other hand, has made huge strides in semi-autonomous driving technology—specifically via Bluebox, an off-the-shelf development platform that lets automakers easily bring semi-autonomous features to their vehicles—making the Dutch firm a force to reckon with in driverless car technology.

Had Qualcomm been successful in the acquisition, the move would have immediately strengthened its standing in the automotive space, without the company having to slowly build out its position over the years.

At the same time, by getting its hands on NXP’s driverless tech, Qualcomm would have become an important and powerful new presence in the rapidly evolving circuit of autonomous cars.

Still well positioned

While acquiring NXP undoubtedly offered advantages, Qualcomm remains well positioned in the aftermath. The chipmaker has already established itself as a key automotive supplier that brings expertise on functional safety, and it also owns a track record of meeting industry expectations while also providing valued support to its partners. Moreover, Qualcomm has successfully developed a beachhead into the automotive market, forging relationships with a broad array of established players that includes Audi, BYD, Daimler AG, Ford, Honda, Jaguar, and Visteon, among others.

Qualcomm has also made discernible gains since the time it initiated the NXP acquisition. Back then, its Snapdragon suite of system-on-chip (SoC) solutions for mobile devices had only a niche market share in infotainment. Yet today, even without the boost it would have received from taking over NXP, Qualcomm has a substantial foothold in the infotainment market, and is well positioned—given the firm’s numerous recent design wins in the pipeline—to increase its market share in the near future.

Looking forward, Qualcomm brings a solid mobility legacy of low-power consumption and cost sensitivity, two prized attributes that allow for an aggressive technology roadmap. With the growing importance of connectivity in general and 5G specifically as enabling technologies for the automotive industry, Qualcomm’s vehicle-to-everything (V2X) initiative and development of 5G-application-specific SoCs offer a key foundation for future growth, especially as the automotive industry learns the competitive value of tracking adjacent markets.

Failure to acquire NXP might be a disappointment, but Qualcomm’s competitive value remains strong. – IHS Technology

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