Broadcom plans Qualcomm deal to build chip colossus

Buying Qualcomm would transform Broadcom into the 3rd-largest chipmaker, behind Intel and Samsung Electronics

By BLOOMBERG

NEW YORK • Broadcom Ltd CEO Hock Tan is contemplating an audacious US$100 billion (RM424 billion) bid for Qualcomm Inc, people familiar with the matter said, using what would be the largest technology takeover to build a powerhouse that dominates the market for wireless chips.

An offer of about US$70 a share would include cash and stock and is likely to be made in the coming days, said the people, who asked to remain anonymous discussing a private transaction that could still not come to fruition.

Buying Qualcomm would transform Broadcom into the third-largest chipmaker, behind Intel Corp and Samsung Electronics Co, and make it the leader in chips used in the more than one billion smartphones sold each year. The combination would dwarf Dell Inc’s US$67 billion acquisition of EMC in 2015 — then the biggest in the technology industry — and meld Qualcomm’s dominance of chips that connect handsets to wireless networks with Broadcom’s expertise in chips that link devices to WiFi networks.

“The deal makes a lot of sense,” Romit Shah, an analyst at Instinet, said on Bloomberg Television. “Broadcom would be getting US$30 billion in revenue and it would be very strategic. Both companies have a significant presence in smartphones.”

Qualcomm shares rose as much as 19% in New York in their biggest intraday move since October 2008 after Bloomberg News first reported the takeover plans. They closed up 13% at US$61.81, valuing the company at US$91 billion. Broadcom rose 5.5%, for a market valuation of about US$112 billion.

A serial acquirer, Broadcom’s Tan has played a pivotal role in a wave of consolidation engulfing the US$300 billion semiconductor industry over the last three years. Broadcom, created in 2016 when Avago Technologies Ltd acquired Broadcom Corp for US$37 billion, has built itself from a former Hewlett Packard division into one of the largest chipmakers via a string of purchases. A former CEO of Integrated
Circuit Systems Inc who has held senior management positions at Commodore International Ltd, PepsiCo Inc and General Motors Co, Tan has made it plain that he wants to strike more deals.

Tan, who holds degrees in mechanical engineering from the Massachusetts Institute of Technology and an MBA from Harvard Business School, laid the foundation for future dealmaking lasy Thursday. In a widely broadcast announcement alongside US President Donald Trump in the Oval Office, Tan said he will move Broadcom’s headquarters to the US from Singapore.

Broadcom, which counts Apple Inc among its largest customers, already lists San Jose, California, as a corporate co-headquarters.

Still, analysts said the domicile change would make it easier for Broadcom to launch deals from the US and complete its US$5.9 billion takeover of Brocade Communications Systems Inc. Announced last November, that transaction has been delayed at least three times by the Committee on Foreign Investment in the US, a panel that reviews the security risks of foreign acquisitions of American companies.

Qualcomm finds itself in a weakened state. It’s embroiled in a legal battle with Apple that has taken a toll on revenue and jeopardised a business model that made Qualcomm one of the most successful chipmakers. Before today, its shares had slumped 16% this year, compared to a 41% surge in the Philadelphia Semiconductor Index.

At issue between Qualcomm and Apple are licensing fees the chipmaker charges for patents that cover the basics of how mobile phone systems work. Apple contends Qualcomm is unfairly charging too much and illegally taking advantage of its market position in chips. To heighten pressure on Qualcomm, Apple has stopped paying the licensing fees and is planning to designing devices that exclude Qualcomm’s chips, according to a person familiar with the situation.

Qualcomm has countered that Apple, one of its largest customers, has lied to regulators in an unfair attempt to bully its opponent into charging less. It has filed lawsuits seeking to ban the sale and manufacture of iPhones in China, the world’s largest phone market.