Qualcomm may need strategy refresh in wake of Avago-Broadcom deal

Dominant chipmaker Qualcomm (NASDAQ:QCOM) may need to take some radical steps to stay ahead of the direct competition presented by the $37 billion acquisition of Broadcom by Avago Technologies, analysts said Thursday. That could mean putting together some innovative partnerships, or even divesting itself of certain parts of its business.

To combat the new Broadcom's reach, Qualcomm could partner with Intel, for example. That's according to Richard Whittington, an analyst with Drexel Hamilton, speaking to Reuters. "Qualcomm has aspirations of moving into Intel's data center processor incumbency that the Avago storage and now enterprise networking (from Broadcom) capability directly overlays," Whittington said.

But there are a number of other areas where Broadcom/Avago may put pressure on Qualcomm. The new Broadcom (Avago has said it will use Broadcom's name) could become another viable supplier to wireless handset makers. And it already has a reach into areas that Qualcomm is potentially trying to enter, such as data centers, infrastructure and consumer segments.

With that in mind, Qualcomm may need to take a step in the other direction, and strip itself of business that is in direct competition with Broadcom, another analyst, Chris Geier of Sikich Investment Banking, told Reuters. "The status quo for them at this point won't work," Geier said.

Consolidation in the semiconductor/chipmaker segment is continuing to put pressure on Qualcomm as well, with NXP buying Freescale earlier this spring and Intel in talks to buy Altera Corp. Avago also bought Emulex, a network connectivity provider, in February.

Still, competitive pressure doesn't mean Qualcomm is going to back away from potential new sources of revenue. The chip maker said in May that it is generating significant business from offering chipsets for Internet of Things (IoT) devices. Qualcomm also pulled in more than $1 billion between September 2013 and September 2014 from businesses other than handsets with President Derek Aberle predicting that such businesses would make up 10 percent of its revenue by the end of the same period in 2015.

Avago is planning to use its Broadcom acquistion to get further involved in the wireless infrastructure, networking and broadband technology markets.  Broadcom is a major supplier of Wi-Fi silicon and of Wi-Fi combo chipsets, which include Bluetooth, FM radio and other technologies. Additionally, Broadcom is a player in the Internet of Things market.

 For more:
- see this Reuters story

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