Primarily, Qualcomm's business relies on making components for smartphones, supplying parts for manufacturers the likes of Samsung, LG, Apple, and nearly every major player in the landscape. But Qualcomm has the potential to be in an extremely tight spot in the coming years.
Recent reports suggest that Apple is pulling out Qualcomm-made components from future iPhones and iPads and will rely on either Intel or MediaTek instead for those parts. This is huge. Apple made up 20 percent of Qualcomm's chip sales last year, according to an estimate by Macquarie Capital. Losing that much in the coming years screams trouble.
Qualcomm To Be Acquired By Broadcom?
Suppose that happens, there's still a way for Qualcomm to stay afloat — a potential acquisition. According to Bloomberg, Broadcom is considering a bid of over $100 billion to acquire Qualcomm, representing what could be the biggest-ever buyout of a chipmaker.
The company is discussing the deal with advisers, according to sources, as Bloomberg reports. At about $70 per share, the offer would reportedly include cash and stock and is likely to be announced in the coming days. But whether Broadcom intends to proceed with the offer remains unknown.
Upon news of a potential takeover, Qualcomm's shares rose as high as 19 percent, its biggest intraday spike since 2008. Meanwhile, Broadcom's shares rose 5.5 percent as well.
Hock Tan, Broadcom's CEO, is a voracious acquirer, according to Bloomberg. He has played a major role in acquisitions and consolidation in the chip industry in the last few years. Tan has mentioned that he wants to close more deals.
Qualcomm Is In A Tight Spot Right Now
Qualcomm is presently in an awkward position. For starters, it's possibly thinking about what steps to take suppose Apple does ditch its components for the next iPhones and iPads. Both of them are currently embroiled in a nasty legal battle in which Apple has alleged Qualcomm of overcharging for patent royalties because it dominates the industry. The companies have been firing lawsuits back and forth since their war began in January.
The potential $100 billion Broadcom deal is making stockholders happy. Why? For starters, Qualcomm is in an existential crisis as its legal showdown with Apple intensifies. Also, as mentioned, news of the takeover made Qualcomm's shares tick up significantly — and that could rise further once Broadcom formally announces its offer.
It remains uncertain what would happen to Qualcomm's legal dispute with Apple if it does sell itself, but it's highly likely Broadcom would settle the fight to avoid losing more money in lawsuits and legal fees.