Qualcomm acquires NXP for $47 billion in cash, making it the largest semiconductor acquisition ever
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Credit: NXP

Credit: NXP

Qualcomm needs to diversify from wireless applications and NXP will aid that transition

Qualcomm will pay $47 billion in cash to acquire NXP Semiconductor, which specializes in security applications, IoT, and automotive systems. Talks began earlier this year and were finalized this month.

At $47 billion, the deal now surpasses the value of SoftBank’s acquisition of ARM, which was previously the largest transaction of its kind this cycle and was also meant to leverage the latter manufacturer’s automotive ICT strengths for its new owner.

Qualcomm has done better than initially projected this year, previously posting some revenue downgrades due to troubles with overheating Snapdragon chipsets last year, Samsung’s decision to go in-house for Galaxy phone CPUs, and Intel becoming an Apple modem supplier seemed to herald leaner times ahead.

(In the last instance, though, Qualcomm seems to now be vindicated by a Cellular Insights study that found its modems in the iPhone 7 provide much better LTE access than Intel’s do.)

Despite these bumps on the road in 2015-16, Qualcomm remains a world leader in wireless applications – it is a longtime Apple and Sony supplier, among other tech giants – so adding NXP’s operations to its own will help it better compete in these other areas outside of the oversaturated smartphone market. Smart cars with more and more features are going to market each year, with new onboard entertainment features, and driver assistance tools packed into the auto body. So this is where the automotive market converges with IoT.

Qualcomm already reported $1 billion in revenues in IoT products, ranging across wearables and smart city applications, in 2014, with good earnings in the automotive field as well. Automotive is already an area of strength for the company, as its chipsets are standard in tens of millions of vehicles on the road.

Smart cars and security

The semiconductor smart cars industry will be worth $15 billion in 2020. The NXP deal will help Qualcomm grow in the sector in other ways. Qualcomm has already developed its Snapdragon line for smart cars, and these will feature heavily in Audi’s 2017 lineup, reports Engadget. They are mainly meant to serve higher-end functions within the smart car, bringing machine intelligence capabilities to work as a networking hub for Android Auto or CarPlay, according to xda-developers.com.

NXP’s automotive systems, though, are tailored more for “low-powered components for integrated devices,” such as sensor suites and infotainment options. So, rather than duplicate existing capabilities, Qualcomm will bring in established designs for other areas where it had done less work on its own before today. As Forbes notes, “IoT is a high-volume, low-revenue opportunity” for semiconductor manufacturers, so, “chip companies will have to differentiate their product offerings” to compete.

Spending on identity-protection technology is increasing worldwide as well, and is now an even more pressing concern for the IoT industry in the wake of multiple cyber attacks through improperly secured devices. (The latest such incident has been in Singapore, where StarHub-made webcams and routers were compromised by a new botnet, distinct from one known as “Mirai” that took down Twitter in the US earlier this month.)

Semiconductors may not seem as flashy as other ICT industries, but they remain just about the most lucrative technological field out there. Industry revenue has plateaued and even fallen worldwide and it is therefore in the industry’s interest to consolidate and then branch out into new areas. According to Research and Markets, though, increased demand for smart TVs and other consumer electronics will see sustainable growth return to the semiconductor industry in the next few years.

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