According to a report from Bloomberg, chipmaker Broadcom is launching an ambitious campaign to acquire Qualcomm, best known as the default System on a Chip (SoC) and cellular modem vendor in most smartphones. Broadcom has reportedly made an unsolicited offer to buy Qualcomm in a deal valued at $130 billion, which, if it succeeds, would be the largest acquisition in tech history.
It’s not a done deal, however. Qualcomm apparently isn’t happy with the offer, with Bloomberg saying that Qualcomm thinks the deal “undervalues the company.” Publicly, Qualcomm has only said it is “evaluating” the deal.
Qualcomm is best known for its near-monopoly on the high-end smartphone SoC market, with its “Snapdragon” line of chips. At its heart, any Android phone worth talking about has a Qualcomm SoC, which combines the CPU, GPU, RAM, cellular modem, and other components into a single chip. Qualcomm gained this near-monopoly on the back of its 3G CDMA patents, which Sprint and Verizon rely on for network connectivity. When buying a Qualcomm SoC, you get an integrated Qualcomm modem, covering Qualcomm’s patent portfolio, while saving space and power thanks to the on-chip solution. If you use a non-Qualcomm SoC, you generally need a separate modem, which is less power- and space-efficient than a single-chip solution. And if you don’t use a Qualcomm modem, you also owe the company hefty royalties. By leveraging its cellular patents, Qualcomm made its SoCs the path of least resistance for OEMs. The chips offer superior performance for a lower price while locking out their competition.
There are only two smartphone vendors with a choice to not use Qualcomm. One is Samsung, which can compete with Qualcomm’s high-end offerings through its Exynos line. Even then, Samsung usually uses Qualcomm chips in the US, opting for a single-chip solution and lower royalty payments. The other is Apple, which makes its own SoCs for the iPhone and iPad. Typically, Apple has packaged a separate Qualcomm chip with the iPhone, but the company recently had the audacity to use an Intel modem in some iPhone models.
The move instantly put Qualcomm and Apple at odds, and the lawsuits soon began flying. After seeing Qualcomm’s royalty demands for the Intel modems, Apple sued Qualcomm, claiming the company was charging “extortion-level royalties.” Apple said Qualcomm “built its business on older, legacy standards but reinforces its dominance through exclusionary tactics and excessive royalties.” Qualcomm fired back, saying it only wanted to receive “fair value for our technological contributions to the industry.” Apple is now reportedly planning to cut Qualcomm out of the iPhone entirely.
Qualcomm’s spat with Apple has put the company in a weak position, as have inquiries and lawsuits from regulatory bodies around the world. Bloomberg’s report says that “Qualcomm will argue that the proposal is an opportunistic move to buy the chipmaker on the cheap, the people said, and it will likely recommend that shareholders reject it.” Broadcom is offering $70 a share in cash and stock for Qualcomm, which would be a 28 percent premium over Qualcomm’s stock price, but that’s also about what the stock was worth about a year ago.
If the deal goes through, it would make Broadcom the world’s third-largest chipmaker behind Intel and Samsung. Qualcomm is also trying to close a $47 billion deal with NXP, another chipmaker and the inventor of NFC.
Getting the deal past antitrust regulators would also be an issue, but Broadcom’s CEO, Hock Tan, seems to already be doing some legwork on that front. The CEO recently visited with President Trump and made a deal to officially move Broadcom’s headquarters from Singapore to the US.
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