Qualcom and Broadcom Powerful Merger

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Two of the most powerful smartphone chip supplier companies may soon join hands. Broadcom, an ambitious company, has turned around under the leadership of Tan. The company has gone from a share price of $50 in 2013 to now over $270, and it doesn’t seem to be stopping anytime soon. With ambitious leadership comes acquisitions with the company buying Brocade in 2016 for $5.5 billion. This time around the company may bid over $100 billion for Qualcomm.

Broadcom specializes in wireless solutions providing chips for the major smartphone companies to connect with wireless networks. The giant is looking to expand into vehicles where it sees is the next area of growth as well as set up a moat for Intel that is looking to expand into the smartphone industry as well as other key growing segments. Qualcomm, on the other hand, has a higher margin business providing modems for most major smartphones including the Apple iPhone and the Samsung Galaxy. Recently Qualcomm’s stock has laid flat amid troubles from Apple. The company is being sued for its licensing business and Apple may soon look elsewhere for a modem supplier. Not only will the legal fight hurt Qualcomm against Apple, who has superior bargaining power and cash reserves, but it could possibly hurt its licensing and patent business in the long run, their most profitable division. The company provides chips but its portfolio of technologies with the communication industry is attentive and it requires companies like Apple and Samsung to license its patents. They ask for a percentage of the price of their final product, which is a fee Apple is no longer willing to pay or thinks is feasible. If courts rule against Qualcomm in this case it could cause a bad precedent and Qualcomm would have to look towards either expanding into new industries or charging more for its chips which, ultimately bringing new competitors into the landscape.

Looking ahead, Qualcomm is close to finishing off its own acquisition of NXP. The move came as a result of high demand in driverless car computing and a way for the company to expand the industries it deals with. It is the same reason companies like NVIDIA have been rapidly growing. Both Qualcomm and Broadcom went up on Friday following the news that would make them one of the biggest telecommunications contenders alongside Intel. Qualcomm and Broadcom could lead in mobile data networks, WiFi, and Bluetooth. Regulators may find trouble in this with Sprint and T-Mobile falling apart and courts levying a fine of AT&T and Time Warner. Regulation could come into Broadcom’s favor considering the company is planning to move its headquarters to the U.S., an idea the current President remarked amid tax efforts. Moving the company from Singapore to San Jose would mean valuable technology would not be owned by a foreign entity as well as money being brought and avoid future inversions. At the moment both the companies have not made a comment. Qualcomm would need serious board approval for selling the company between $70-$80 especially with 5G becoming popular soon.

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