The Strategist

Qualcomm is negotiating purchase of NXP Semiconductors

09/30/2016 - 15:21

According to The Wall Street Journal, citing sources familiar with the situation, the US chip makers Qualcomm and NXP Semiconductors from Netherlands are negotiating a merger. The deal could be worth $ 30 billion. The negotiations are at an early stage, and NXP Semiconductors could find another buyer.

Kārlis Dambrāns
Kārlis Dambrāns
Purchase of NXP Semiconductors could help Qualcomm diversify its business and improve its position in the automotive market. In recent years, there have been several large mergers of manufacturers of microprocessors (for example, Avago Technologies has bought its competitor Broadcom for $ 37 billion, and Intel - Altera company for $ 16.7 billion). Experts believe that consolidation in the microprocessors market is related primarily to the fact that development and production of modern microprocessors are becoming increasingly complex and costly. Qualcomm has been negatively affected by slowdown in smartphone sales - the company is a supplier of Apple and many manufacturers of smartphones on Android OS.

Rumors of a possible merger raised NXP Semiconductors’ shares to 17%, and Qualcomm’s - by 6.3%.

The Wall Street Journal notes that consolidation among manufacturers of semiconductors continues. Since the beginning of 2015, M&As in this sector totaled $ 200 billion; $ 75 billion of them account for 2016. Now, it is the highest rate of mergers and acquisitions among all sectors of the IT industry.

Lincoln Clark, an analyst at consulting and auditing company KPMG LLP, commented on Qualcomm’s acquisition. According to him, growing consolidation of the semiconductor business has been triggered by a fierce need to reduce production costs. Spending is constantly rising as chips are becoming slimmer, which makes process of their development and production more complex and expensive.

In this context, the easiest way to expand a company is to acquire another one, said Keith Jackson, director of US company ON Semiconductor. His company recently completed gave $ 2.4 billion for legendary brand Fairchild Semiconductor (in 1959 produced the first integrated circuit suitable for mass production). 

Major acquisitions in the semiconductor sector

In May 2015, Avago Technologies Singapore developer announced acquisition of Broadcom Corporation, the US manufacturer of integrated circuits. The deal, which ended at the beginning of 2016, amounted to $ 37 billion.

In June 2015, Intel announced acquisition of a major American developer of application-specific integrated circuit (ASIC) Altera for $ 16.7 billion. More recently, US manufacturer SanDisk in May 2016 completed acquisition of American Western Digital for $ 16 billion.

Finally, in July 2016, Japanese SoftBank Group announced acquisition of the world's largest developer of mobile processors ARM Holdings. The transaction value exceeded $ 32 billion.

In July 2016, semiconductor sales increased by 2.6% compared to June and brought 27.1 billion US dollars. Experts stressed that this is the most significant monthly increase registered since September of 2013. In addition, semiconductor sales rose from the previous month in all regions of the world for the first time since October 2015.

Semiconductor Industry Association added that chip sales declined by 2.8% year on year.

"A modest increase in global sales of semiconductors in July was the largest monthly gain in the industry for almost three years, which is an encouraging sign and indicates a possible increase in revenues in the period remaining before the end of 2016 and beyond," - said the association’s Head John Neuffer.