Qualcomm expands to auto, IoT industry with $47B NXP purchase

Qualcomm's acquisition of NXP could give the company a firm grip on the automotive market.

Qualcomm this morning announced an agreement to purchase rival chipmaker NXP in a transaction valued at $47 billion. Qualcomm said the move would give it better access to new industries including the automotive, security and IoT sectors, a move noteworthy as Qualcomm’s core market of chips for smartphones continues to show signs of slowing down.

“By joining Qualcomm’s leading SoC capabilities and technology roadmap with NXP’s leading industry sales channels and positions in automotive, security and IoT, we will be even better positioned to empower customers and consumers to realize all the benefits of the intelligently connected world,” said Steve Mollenkopf, CEO of Qualcomm, in a release announcing the deal.

NXP is based in Eindhoven in the Netherlands, and specializes in chips for automotive systems, ID cards and transit cards. It was founded more than 60 years ago, and became the number one supplier of chips used in cars after it acquired Freescale last year in a deal valued at the time of around $11.8 billion.

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Rumors of a possible transaction between Qualcomm and NXP surfaced last month at a rumored value above $30 billion, given NXP's roughly $28 billion market value at the time. Qualcomm said it expects the transaction to close by the end of 2017, and the company noted the deal is “subject to receipt of regulatory approvals in various jurisdictions and other closing conditions.”

Qualcomm’s stock remained relatively unchanged this morning at around $68 per share, indicating Wall Street had largely anticipated the pairing prior to its official announcement today.

Qualcomm touted that its combination with NXP would create a company with annual revenue of $35 billion and an addressable market stretching from phones to cars to the Internet of Things that could be worth up to $138 billion by 2020. In the IoT specifically, Qualcomm said its strength in “advanced computing,” SoC and connectivity systems would be combined with NXP’s position in broadbased MCUs, secure ID, payment cards and transit.

To be clear though, Qualcomm’s mobile business would still represent the lion’s share of a combined Qualcomm and NXP. Today, Qualcomm earns roughly 61 percent of its revenues from mobile, and that figure would total 48 percent under a combined scenario. But Qualcomm’s revenues from the auto and IoT sector would jump from $1.9 billion today to fully $10.2 billion with the addition of NXP’s business.

Qualcomm added that it anticipates $500 million of “annualized run-rate cost synergies” within two years after the transaction closes.

As Qualcomm moves into the adjacent auto and IoT industries with its purchase of NXP, the company continues to face challenges in its core market of silicon for phones. Specifically, Apple confirmed that Intel would be supplying almost half of its baseband chips for the iPhone 7, breaking a hold that Qualcomm had maintained almost exclusively so far. And chip analyst Will Strauss recently pointed out that one of Qualcomm’s main rivals in the mobile chipset space, MediaTek, recently broke into the U.S. market with a deal to supply silicon to the LG Stylo 2V. “The LG device employs MediaTek’s Helio P10, a high-performance 4G octa-core processor clocked at 1.8 GHz and running the Android Marshmallow OS,” Strauss noted.

Overall, though, the smartphone market continues to show signs of slowing from years of dramatic growth, a situation that appears to be sparking a number of major M&A deals among mobile companies looking for further opportunities for growth. Just this week AT&T announced a deal to purchase Time Warner for $85.4 billion.