Case Background: Broadcom buying Qualcomm
The attempted Broadcom acquisition of Qualcomm in November of 2017 lead to a 10 point stock jump of QCOM generating a lot of interest and buzz around the telecom and semiconductor industry. Up to that point, shareholders had been highly critical of Qualcomm management and the aging Qualcomm IP. The QCOM market cap consistently decreased from 2014 to 2018 and there is speculation that they have lost their competitive edge due to poor governance and ongoing legal battles over licensing. In March of 2018, Qualcomm released the results of their board elections via their website and found that all directors were reelected with the exception of former chairman Paul Jacobs. According to Hock Tan, President and CEO of Broadcom stated that “This complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products.”
Why the Broadcom Qualcomm merger failed
Under the argument to “protect national security,” President Trump issued an executive order blocking the Broadcom Qualcomm merger on March 12, 2018 – this was following a letter that echoes the claim from the U.S. Committee on Foreign Investment.
We approached our, various, highly experienced Subject Matter Experts to provide insight on Broadcom vs Qualcomm and what can be expected in the international race to 5G. Here’s what they had to say in response to our questions:
From your perspective as an IP Expert, do you feel that there is anything to substantiate the claim against the Broadcom Qualcomm merger?
GHB Experts: I don’t think there is a “national security” argument, but I do think there is a strong competitiveness argument. The major fear of Broadcom buying Qualcomm was that they would reduce investment in 5G R&D, allowing Huawei, the Chinese smartphone company, to lead the chipset technology. One of the few instruments that Western telcos such as Qualcomm have had at their disposal when competing against some arguably unfair trade practices from the Chinese competitors is a deep IP portfolio, which the Chinese have been lacking. I do think that having Qualcomm IP in Broadcom’s hands increases the likelihood of it either being licensed to China on very favorable terms or outright sold off to China. As a strategic move, that portfolio can be worth a lot more than its otherwise actual value to a Chinese telco.
In the wake of this decision, Broadcom has stated that they are reviewing the order and that they “Strongly Disagree” – shortly after, they withdrew their bid to buy and and board nominees. What can we expect in the future in terms of Broadcom vs Qualcomm?
GHB Experts: Now that they have announced their relocation to the U.S., Broadcom will look to acquire other players in the 5G space such as Nvidia or AMD. This depends on whether their real interest in Qualcomm was the chipset know-how or the telco IP.
During this period, Qualcomm has concurrently been in process of acquiring the semiconductor manufacturer NXP. That deal is expected to go through. What does that mean for Qualcomm and its shareholders? Is Qualcomm a buy?
GHB Experts: Qualcomm is overpaying for NXP, so shareholders will take a loss initially. In the long run, they should be able to create the value back since their offerings are substantially complementary. They have the opportunity to leverage the markets that NXP is already in, primarily automotive, and compete with Intel and Broadcom.
Is there Synergy between NXP and QCOM? Is this a good move for Qualcomm from an IP Perspective?
GHB Experts: There is an IP/Product fit but these are two companies that are struggling with management and governance. Qualcomm must do something since their licensing model is not as successful as it used to be.
What can we expect from Apple moving forward? Additional contracts with Qualcomm or additional contracts with Intel?
GHB Experts: The legal battles between Apple and Qualcomm suggest Intel is the better partner for Apply but the strategic move would be to continue to use a multi-vendor approach. They need to to hedge risks – they can’t put themselves in a position to be reliant on a single supplier.
Is there any chance that Intel will make a move at Broadcom or Qualcomm if the merger is back on the table?
GHB Experts: Intel moving on Qualcomm would more make sense, but they may face some major anti-trust pushback. There will be more consolidation of the large semiconductor companies but Broadcom is very different from Intel. The speculation in this space is very interesting.