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Is Qualcomm's Merger with NXP Semiconductors Facing Trouble?
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As per a recent report by Bloomberg, U.S. mobile chipset giant, Qualcomm Inc.’s (QCOM - Free Report) proposed acquisition of Netherlands-based mobile chipset giant NXP Semiconductors NV (NXPI - Free Report) is facing some disturbances.
In Oct 2016, Qualcomm entered into a definitive agreement with NXP Semiconductor to buy the latter. Per the deal, Qualcomm will pay $110 per NXP Semiconductors share in cash reflecting an enterprise value of approximately $47 billion (equity value of $39 billion) for the Dutch chipset maker. The deal is likely to be closed by the end of 2017 subject to all necessary regulatory approvals.
According to the report, Elliott Management Corp. and two other large shareholders of NXP Semiconductors have decided to approach the company to renegotiate terms of the deal, which they consider grossly undervalued. Notably, NXP Semiconductors already announced that its shareholders have approved the company’s takeover by Qualcomm during an extraordinary general meeting of shareholders held on Jan 27, 2017.
NXP Semiconductors is a leading manufacturer of high-performance, mixed-signal mobile chipsets. The company has a strong clientele serving more than 25,000 customers through its direct sales channel and global network of distribution channel partners. The combined entity is likely to generate annual revenues of over $30 billion. Further, it will position itself as a strong player in the next-generation mobile chipset segment with a potential market size of $138 billion by 2020.
Qualcomm expects the transaction to be significantly accretive to its non-GAAP EPS immediately upon completion. Further, the company expects to generate $500 million of annualized run-rate cost synergies within two years after the transaction closes.
Advantages to Qualcomm
The major positive of the deal is that it will enable Qualcomm to diversify its business model. The company is the leader in mobile chipset market. However, in recent years, markets for smartphones and tablets are gradually slowing down. Additionally, these chipset businesses are low-margin in nature. For the last couple of years, the company’s business has remained stagnant.
On the other hand, NXP Semiconductors manufactures chips for next-generation automotive, industrial and Internet of Things (IoT) segments. Therefore, acquisition of NXP Semiconductors will enable Qualcomm to diversify into highly lucrative end markets such as auto, secured devices, connectivity and secure payments. These segments offer high-margin businesses with strong potential for future growth.
The transaction will place Qualcomm in the second position after Intel Corp. (INTC - Free Report) in terms of sales in the broader global semiconductor market. Moreover, the combined entity will also become a formidable challenger to other large semiconductor firms like Broadcom Ltd. (AVGO - Free Report) , Analog Devices Inc. (ADI - Free Report) and ARM Holdings.
Price Performance of Qualcomm
Year to date, the stock price of Qualcomm has lost 12.16% compared with 1.43% gain witnessed by the Zacks categorized Wireless Equipment industry. Qualcomm, the undisputed leader in the global wireless baseband chipset market is widening its presence in adjacent opportunities, including automotive, networking and mobile computing strategies, which bode well for long-term growth. Qualcomm’s Snapdragon processor is best known for its versatility in IoT applications.
However, aggressive competition in the mobile phone chipset market, stringent regulatory norms and anti-competitive charges are some of the major headwinds faced by the company. We believe that these are the reasons behind the company’s currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Is Qualcomm's Merger with NXP Semiconductors Facing Trouble?
As per a recent report by Bloomberg, U.S. mobile chipset giant, Qualcomm Inc.’s (QCOM - Free Report) proposed acquisition of Netherlands-based mobile chipset giant NXP Semiconductors NV (NXPI - Free Report) is facing some disturbances.
In Oct 2016, Qualcomm entered into a definitive agreement with NXP Semiconductor to buy the latter. Per the deal, Qualcomm will pay $110 per NXP Semiconductors share in cash reflecting an enterprise value of approximately $47 billion (equity value of $39 billion) for the Dutch chipset maker. The deal is likely to be closed by the end of 2017 subject to all necessary regulatory approvals.
According to the report, Elliott Management Corp. and two other large shareholders of NXP Semiconductors have decided to approach the company to renegotiate terms of the deal, which they consider grossly undervalued. Notably, NXP Semiconductors already announced that its shareholders have approved the company’s takeover by Qualcomm during an extraordinary general meeting of shareholders held on Jan 27, 2017.
NXP Semiconductors is a leading manufacturer of high-performance, mixed-signal mobile chipsets. The company has a strong clientele serving more than 25,000 customers through its direct sales channel and global network of distribution channel partners. The combined entity is likely to generate annual revenues of over $30 billion. Further, it will position itself as a strong player in the next-generation mobile chipset segment with a potential market size of $138 billion by 2020.
Qualcomm expects the transaction to be significantly accretive to its non-GAAP EPS immediately upon completion. Further, the company expects to generate $500 million of annualized run-rate cost synergies within two years after the transaction closes.
Advantages to Qualcomm
The major positive of the deal is that it will enable Qualcomm to diversify its business model. The company is the leader in mobile chipset market. However, in recent years, markets for smartphones and tablets are gradually slowing down. Additionally, these chipset businesses are low-margin in nature. For the last couple of years, the company’s business has remained stagnant.
On the other hand, NXP Semiconductors manufactures chips for next-generation automotive, industrial and Internet of Things (IoT) segments. Therefore, acquisition of NXP Semiconductors will enable Qualcomm to diversify into highly lucrative end markets such as auto, secured devices, connectivity and secure payments. These segments offer high-margin businesses with strong potential for future growth.
The transaction will place Qualcomm in the second position after Intel Corp. (INTC - Free Report) in terms of sales in the broader global semiconductor market. Moreover, the combined entity will also become a formidable challenger to other large semiconductor firms like Broadcom Ltd. (AVGO - Free Report) , Analog Devices Inc. (ADI - Free Report) and ARM Holdings.
Price Performance of Qualcomm
Year to date, the stock price of Qualcomm has lost 12.16% compared with 1.43% gain witnessed by the Zacks categorized Wireless Equipment industry. Qualcomm, the undisputed leader in the global wireless baseband chipset market is widening its presence in adjacent opportunities, including automotive, networking and mobile computing strategies, which bode well for long-term growth. Qualcomm’s Snapdragon processor is best known for its versatility in IoT applications.
However, aggressive competition in the mobile phone chipset market, stringent regulatory norms and anti-competitive charges are some of the major headwinds faced by the company. We believe that these are the reasons behind the company’s currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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