by Nicole Speciale
Broadcom’s initial offer in pursuit of acquiring Qualcomm took place in November 2017, but has since increased its offer to over $121 billion. Both companies produce chips widely used in smartphones (Broadcom is a provider for both Apple and Google) but Broadcom hopes that by purchasing Qualcomm, it can expand its own market presence. While Broadcom is noted as the world’s fifth largest semiconductor vendor, its merge with Qualcomm would place it in the ranks as the third largest.
The prospect of a Broadcom and Qualcomm merger has roused mixed perspectives, especially considering Qualcomm’s obvious resistance to the (relatively low) offer and lofty concerns over how the merger would be affected by antitrust laws.
The Decline of Standalone Semiconductor Providers
Today, it is expensive to operate as a standalone semiconductor manufacturer, but Qualcomm has indicated it wishes to maintain its standing as such. A large advantage for Qualcomm is that it offers a broad and complete mobile portfolio. However, there appears to be a trend toward consolidation in the semiconductor market. Brands like Toshiba, which exited the market in 2017, experienced or are still experiencing the challenges of operating solo.
Without a doubt, many standalone semi-conductor manufacturers will continue to receive offers for acquisition, and some may accept just to stay afloat. So, if Qualcomm isn’t tempted by Broadcom’s offer who will, down the line, actually make the convincing offer?
Broadcom Is Chasing Qualcomm
Broadcom’s pursuit of Qualcomm underscores operational benefits of consolidation, in addition to economic and legal advantages. Hock Tan, the CEO of Broadcom, insists that under his leadership, issues Qualcomm faces, such as the infamous legal disputes with Apple, can be resolved. It is possible, however, that the competition Qualcomm faces from Intel could impact just how much business Qualcomm does with Apple. Apple is allegedly working on iPhones and iPads that operate without Qualcomm components.
A potentially large advantage for a Broadcom-Qualcomm merger is that both companies offer specializations in different areas of smartphone technology that could expand resources in this market. The flip side of expanding market bandwidth in this case is the onslaught of regulatory laws—this has been effusively pointed out as an obstacle in the success of this merger.
What About Apple?
It seems logical to wonder why Apple doesn’t just try to buy Qualcomm. Apple produces designs but outsources the manufacturing process and has yet to develop its own equivalent of a Qualcomm Cellular Modem. Although Qualcomm and Apple have faced challenges in partnership, Apple’s extensive use of Qualcomm chips could make sense for a merger, especially if the acquisition is able to appease legal struggles between the two.
But with Intel’s presence in the semiconductor market, Apple also has vendor options other than Qualcomm should it decide to terminate its partnership amidst legal disputes.
The Battle for Qualcomm
Apple may never buy Qualcomm, but there will be plenty of others who attempt to do so. Other companies that wish to leverage Qualcomm’s products to expand its market presence will continue beyond the pursuit of Broadcom. The trend toward consolidation is more than just an outcome of incentives—for many, it is a necessity.
Qualcomm will likely continue to face challenges as a standalone semiconductor manufacturer despite its dedication to remain as such, which could mean that we may see an all-out tech war over Qualcomm in the future.