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Oct 27, 2016

DealBook October 27, 2016. Top Story. Qualcomm to Acquaire NXP SemiConductors for $38.5 Billion


nytimes.com

Chad Bray and Quentin Hardy

Chip Industry Is Rapidly Shrinking

Steve Mollenkopf, the chief executive of Qualcomm, said the deal for NXP Semiconductors expands its footprint in the auto industry and “the internet of things.”
By CNBC on October 27, 2016. Photo by CNBC. Watch in Times Video »
LONDON — Qualcomm said on Thursday that it had agreed to acquire NXP Semiconductors for $38.5 billion, the latest deal in the rapidly consolidating chip industry.
Semiconductor makers are betting on the so-called internet of things — the connection of everyday products like watches, refrigerators and cars to the internet — and NXP makes the type of chips that are commonly used in this growing market.
Qualcomm, based in San Diego, primarily designs and makes chips for smartphones. It can use NXP to significantly extend its reach, potentially supplying chips that are used in devices like payment terminals and cars.
The NXP deal could also help Qualcomm combat higher costs and pricing pressure, which have eroded profit margins in the chip industry as demand for personal computers and smartphones has waned.
Qualcomm “is trying to diversify away from smartphones,” said Mark Hung, an analyst with Gartner. “This speaks to creating interesting new devices.”
The chip industry has had a wave of acquisitions as demand for traditional kinds of chips has slowed. In the last two years, more than $100 billion has been spent in just four deals, including Qualcomm’s acquisition of NXP.
In July, SoftBank of Japan agreed to acquire ARM Holdings, a British chip designer, for $32 billion. Last year, Avago Technologies bought Broadcom for $37 billion, and Intel paid nearly $17 billion for Altera. In March 2015, NXP made its own deal, buying a smaller peer, Freescale Semiconductor, for $11.8 billion.
“There were a lot of different suppliers, a lot of competition” in the old world, Derek Aberle, president of Qualcomm, said in an interview. Now, “it’s not enough to deliver a piece of silicon. You have to offer complex solutions, at a large scale,” he said.
Maurice Geraets of NXP Semiconductors installing the mileage charging system device in his car. NXP is a major supplier of chips used in near-field communications. Michel deGroot for The New York Times
One of the biggest new markets for chip makers is automobiles and autonomous vehicles, and NXP’s chips are used for things like running a car’s internal network of electronics.
NXP, which is based in the Netherlands and trades on Nasdaq, also makes chips for secure credit cards. Mr. Aberle said last week’s large-scale disruption of the internet, caused largely by hackers exploiting security flaws in connected devices, showed opportunities in this market.
Qualcomm said it expected to achieve $500 million in annual cost savings within two years after the transaction closes. The combined company would have more than $30 billion in annual revenue.
“The NXP acquisition accelerates our strategy to extend our leading mobile technology into robust new opportunities, where we will be well positioned to lead by delivering integrated semiconductor solutions at scale,” Steve Mollenkopf, the Qualcomm chief executive, said in a statement.
Under the terms of the deal, NXP investors would receive $110 in cash for each share they own. That represents an 11-percent premium to NXP’s closing price on Wednesday. Including the assumption of debt, the deal is valued at $47 billion. Standard & Poor’s Global Market Intelligence said it would be the largest European technology deal ever.
News that the companies were talking emerged last month. The transaction, which is subject to regulatory and shareholder approval, is expected to close by the end of 2017.
“United in a common strategy, the complementary nature of our technologies and the scale of our portfolios will give us the ability to drive an accelerated level of innovation and value for the whole ecosystem,” said Richard L. Clemmer, the NXP chief executive.
But Qualcomm has a spotty track record on big mergers, Mr. Hung noted, and NXP has things like manufacturing centers in which Qualcomm has no experience. “It’s definitely a high-risk-high-reward move for them,” Mr. Hung said.
Some of the risk is eased, Mr. Aberle said, because Qualcomm can pay for part of the deal with the cash it has overseas, in excess of $25 billion.