What's going on?
In what would be the biggest-ever tech acquisition, chip-making giant Broadcom will bid to acquire another chip-making giant, Qualcomm, according to reports released on Friday. And it would be a big deal in more ways than one…
What does this mean?
Broadcom makes Wi-Fi chips for phone manufacturers like Apple and Samsung, among other things. Having built itself up through a series of acquisitions, the company now has Qualcomm in its sights. Qualcomm supplies phone makers with high-end modem chips that, importantly, connect phones to wireless data networks like 4G.
Qualcomm’s had a tough year, with its share price down 16% before news of the acquisition broke, while chipmakers on average are up 40%. In part, its troubles stemmed from a legal dispute over pricing with Apple – it even issued a profit warning and blamed the dispute. But Qualcomm’s difficulties are an opportunity for Broadcom to gain a foothold in the high-end modem chips business, which is more lucrative than the Wi-Fi chips game.
Why should I care?
For the stocks: Investors on both sides like the deal.
Broadcom would have to pay a price high enough to convince Qualcomm’s shareholders to sell their stakes, making Qualcomm’s shares more valuable – they were up 13% on Friday. While Broadcom is expected to stump up over $100 billion for the deal, it appears investors see the value in the idea – Broadcom’s shares were up over 5% as well.
For markets: Other chipmakers felt the reverberations of the news.
The acquisition would make life more difficult for Qualcomm’s big competitor Intel, whose shares fell almost 2% on Friday. It also raises questions about Qualcomm’s proposed acquisition of European chipmaker NXP (which was agreed between the two companies a year ago, but is yet to be formally completed). Some NXP shareholders have been trying to get Qualcomm to pay a higher price than the one that was agreed, but this may be less likely if Broadcom just buys Qualcomm instead – NXP shares fell by 2% on Friday.