By Nick Flaherty www.flaherty.co.uk
The $47bn takeover of NXP and Freescale by Qualcomm by the end of the year is a bombshell for the embedded industry. Both NXP and Freescale have major focus on embedded while Qualcomm has not - the main angle is the cellphone and networking business.
While the move will push Qualcomm into the automotive electronics business, there are signficant risks to the embedded divisions. NXP also has leading positions in automotive infotainment, networking and safety systems, with solutions designed into 14 of the top 15 infotainment customers in 2016 but also serves more than 25,000 customers through its direct sales channel and global network of distribution channel partners.
The deal is largely financed by Qualcomm's offshore cash to avoid US taxes. Qualcomm says the transaction is structured to enable tax efficient use of offshore cash flow to rapidly reduce leverage.
“With innovation and invention at our core, Qualcomm has played a critical role in driving the evolution of the mobile industry. 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,” said Steve Mollenkopf, CEO of Qualcomm. “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.”
The combined company is expected to have annual revenues of more than $30 billion, addressable markets of $138 billion in 2020 and leadership positions across mobile, automotive, IoT, security, RF and networking.
Qualcomm sees complementary technology leadership in strategically important areas such as general purpose and automotive grade processing, security, automotive safety sensors and RF, as well as mobile SoCs, 3G/4G modems and security.
In networking the new company would be a leader in network processors for wired and wireless communications and RF sub-segments, Wave-2 11ac/11ad, RF power and BTS systems.
Costs will also be slashed. Qualcomm expects to generate $500m a year in savings in the first two years.
“We have taken significant action to build a foundation for profitable growth and the acquisition of NXP is strongly aligned with our strategy," said Mollenkopf. "Our companies both have substantial expertise in delivering industry-leading solutions to our global customers, built upon a shared commitment to technology innovation, focused R&D investments and strong financial and operational discipline.”
“The combination of Qualcomm and NXP will bring together all technologies required to realize our vision of secure connections for the smarter world, combining advanced computing and ubiquitous connectivity with security and high performance mixed-signal solutions including microcontrollers. Jointly we will be able to provide more complete solutions which will allow us to further enhance our leadership positions, and expand the already strong partnerships with our broad customer base, especially in automotive, consumer and industrial IoT and device level security," said Rick Clemmer, NXP Chief Executive Officer. “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. Such a strong fit will bring opportunities for our employees and customers, as well as provide immediate attractive value for our shareholders, in creating the semiconductor industry powerhouse.”
Sir Peter Bonfield, Chairman of NXP’s Board of Directors, said, “This is a major step in my ten years’ Chairmanship of NXP, and I am very pleased to see that the board of NXP has unanimously approved the proposed transaction and fully supports and recommends the offer for acceptance to NXP shareholders.”