Oct 27, 2016Global telecommunications equipment and semiconductor company Qualcomm is acquiring integrated circuit manufacturer NXP Semiconductors. According to industry observers, the $47 billion acquisition—including debt—is the largest chip company transaction to date, and positions Qualcomm as the world's top seller of semiconductors.
By acquiring NXP, Qualcomm is poised to diversify its product offerings—including Near Field Communication (NFC) and radio frequency identification technologies—further into cellular, industrial and automotive microprocessors and controllers. The firm is also now able to offer full solutions.
"Our deep customer relationships and distribution channels are additive to one another, not duplicative," says a Qualcomm spokesperson. "Together, we will be able to deliver a broader portfolio of best-in-class technologies and platforms to our customers, while bringing new products to new markets, and at a more rapid pace."
NXP Semiconductors, the world's fifth largest semiconductor company, makes chips not only for RFID applications, but also for automotive and mobile devices—tablets and smartphones—as well as wearable devices. Based in Eindhoven, Netherlands, the firm employs 45,000 workers throughout more than 35 countries. The company sells a variety of RFID chips, including the NFC NTag, a low-frequency (LF) HiTag, the high-frequency (HF) 13.56 MHz iCode, the ultrahigh-frequency (UHF) RFID uCode and the uCode DNA. NXP's Mifare RFID chips, which comply with the ISO 14443 and NFC standards, are used in more than 40 different types of applications, including transit systems, contactless card payments, passports and access control, according to NXP. In addition, the company reports, 260 million Mifare readers and 10 billion Mifare ICs have been sold to date, accounting for more than 80 percent of all contactless credentials deployed worldwide.
The past few years have seen rapid growth for NXP. In 2015, the company acquired Freescale Semiconductor (another microprocessor and microcontroller manufacturer) for $12 billion, nearly doubling NXP's size and making it the world's largest automotive IC maker. Last quarter, it reported a 4.5 percent growth in earnings and averaged 1.04 percent growth over the previous year. The company expects its earnings growth to continue, and predicts that more than 30 billion network-connected devices and more than 40 billion devices with intelligence will be shipped in 2020.
Qualcomm has also been experiencing growth. The company's most recent quarterly earnings report was released in June 2016, when it indicated a revenue increase of 4 percent over the previous year.
Neither company would speak directly to the role that RFID plays in the acquisition, but both firms sell NFC-based products. Qualcomm's subsidiary Qualcomm Atheros, for instance, sells NFC reader chips used in mobile devices, while Qualcomm's Snapdragon processor for mobile devices comes with NFC support provided by NXP reader chips.
NFC reader chips can be found in both Android and iOS smartphones and tablet PCs. Apple's newer smartphones, for example, now support Apple Pay (an NFC-enabled payment service), for which NXP has supplied such chips. "Within the domain of cellular, NFC would be a diversification beyond their existing modem chips," speculates Bill McBeath, ChainLink Research's chief research officer.
With the purchase of NXP at $110 per share, Qualcomm says it hopes to leverage its acquisition's products and development to provide solutions in the automotive sector—for secure access, safety and infotainment; mobile for 3G and 4G modems, as well as security; and Internet of Things solutions, such as mobile transactions, payment cards and transit systems.
In addition to diversification, the acquisition enables Qualcomm to grow further in areas in which it already has traction. "The combined company will have technology leadership in strategically important areas," the Qualcomm spokesperson reports, "including leading positions in mobile, automotive, IoT, security and networking."
The companies together expect to yield annual revenues of $30 billion, and to have serviceable addressable markets of $138 billion in 2020. Within two years, Qualcomm anticipates achieving $500 million in annual cost savings as well.
The acquisition is slated to close at the end of 2017. Until then, says Joon Knapen, NXP Semiconductors' global communications head, NXP will continue to operate as a standalone company.