Intel: The Missing Piece In The Epic New Global Microchip Battle
In the beginning, in the early 1970’s there were the original semiconductor companies like Intel, AMD, Motorola, and not far behind, the Japanese giants NEC, Fujitsu, and Mitsubishi. The first great Chip War was in memory chips, primarily as replacements for magnetic core memory and for the emerging new minicomputer industry. The Japanese fought World Chip War One as a nation, using the power and influence of its entire government to compete against the American companies. At the behest of the U.S. government itself, IBM bought a minority share in Intel to potentially defend Intel against any hostile bid from the Japanese. Not long afterward, the Great Microprocessor War, World Chip War Two exploded, primarily between Intel and Motorola. Intel was the victor of World Chip War Two, primarily due to the extraordinary marketing genius of Intel Marketing VP Bill Davidow’s “Crush” campaign, not superior Intel technology. It was a huge lesson of the importance of marketing over having the “coolest technology.” Now after something of a long hiatus, we have World Chip War Three, which is being fought over “CODECS,” and related chips which power our smartphones. Today’s news about Broadcom’s bid for Qualcomm omits the other crucial player in this new War of Titans, Intel, which has risen from earlier ignominious failures to become the third player in WCW III.
Broadcom’s Bid For Qualcomm Marks Upheaval in Chip Industry
The California-based chip maker offered made an unsolicited $105 billion takeover bid for Qualcomm
Broadcom Ltd. AVGO 1.42% made an unsolicited $105 billion takeover bid for QualcommInc., QCOM 1.15% the chip industry’s boldest bet yet that size will equal strength at a time of technological upheaval.
A combination with Qualcomm would create a behemoth whose chips manage communications among consumer devices and appliances, phone service providers, and data centers that are becoming the workhorses in artificial intelligence.
The deal is far from certain. San Diego-based Qualcomm, which said it would consider the proposal, is expected ultimately to rebuff it on the grounds that the price isn’t high enough, especially given the significant risk that regulators would block it, according to some analysts. Under typical circumstances, unfriendly bids like this are difficult to pull off; given the sheer size and complexity of Qualcomm, this one could be especially challenging, analysts said Monday.
Broadcom’s preference is to strike a friendly deal, but if it fails to do so, it would consider nominating Qualcomm directors who may be more amenable to a transaction, a person familiar with the matter said. The nomination deadline is Dec. 8 and the annual meeting at which the director vote would take place is likely be around March.
Broadcom offered $70 a share for Qualcomm, representing a 28% premium from its closing price on Thursday—before news reports on the expected approach.
Qualcomm shares ended trading Monday up 1.2% to $62.52, while Broadcom shares were 1.4% higher at $277.52.
Mr. Tan said he has been talking with Qualcomm for over a year about a possible tie-up. “Our strategy has been consistent,” Mr. Tan said in an interview. “When a business is No. 1 in technology and No. 1 in market position, we acquire it and put it on our Broadcom platform and grow through that strategy. Qualcomm has a very large sustainable franchise that meets those criteria.”
Should the deal be completed, Broadcom would take on Qualcomm’s leadership in developing the next wave of cellular technology, known as 5G, which is expected to roll out over the coming two years. That could give Broadcom a new growth engine, as 5G is expected to dramatically accelerate the speed and responsiveness of cellular communications necessary for applications like self-driving cars.
Broadcom was formed when Avago Technologies Ltd. bought the former Broadcom in 2015 for $39 billion and kept the name, and Mr. Tan has continued growing by acquisition. The company sells a diverse line of equipment for networking and communications. Its products include chips for Wi-Fi and Bluetooth technology that connect devices that are closer together—technologies that some analysts say are likely to grow less quickly than 5G.
“People will continue to use short-proximity wireless like Wi-Fi and Bluetooth, but the growth and money is clearly in 5G,” said analyst Patrick Moorhead of Moor Insights & Strategy.
Overall, Broadcom and Qualcomm have largely complementary product lines. But the possible Broadcom takeover is likely to face intense regulatory scrutiny, given the companies’ combined scale and the fact that they are both leaders in Wi-Fi and Bluetooth technology. The companies share customers including Apple Inc., whose iPhones and iPads include components from both Qualcomm and Broadcom.
Qualcomm already has been under pressure from antitrust agencies in several jurisdictions, including the U.S. The company has paid hefty regulatory fines in China, South Korea and Taiwan.
Qualcomm was riding high as recently as a year ago after unveiling the chip industry’s largest-ever acquisition: a $39 billion proposed deal for NXP Semiconductors NV. The deal hasn’t closed yet, and Broadcom said Monday that its proposal would stand regardless of whether Qualcomm’s proposed acquisition of NXP is consummated under the current terms.
Since then, a string of hits by regulators, competitors, and customers including Apple has left the industry titan in a vulnerable position. Qualcomm’s profit in the fiscal year that ended Sept. 24 plummeted 57%, and its share price declined 18% in the 12 months through Thursday’s close compared with a 58% rise in the PHLX Semiconductor Sector Index. That was before news of Broadcom’s interest sent Qualcomm shares up nearly 13% on Friday.
Funding for the deal would come in the form of loans from a gaggle of banks, with additional cash from Silver Lake Management LLC. The private-equity firm, which already owns a stake in Broadcom, provided a commitment letter for $5 billion in convertible debt. Silver Lake said a substantial portion of that capital would come in the form of an equity investment from its Silver Lake Partners fund, with the remainder from other sources.
The equity contribution would be the single largest in the history of the firm, exceeding the roughly $1 billion it invested in the merger of Dell Inc. and EMC Corp.
Broadcom’s bid came days after the Singapore-based company announced plans to relocate its headquarters to the U.S., a move that could make it easier to pursue acquisitions of U.S. targets.
Broadcom’s earlier $5.5 billion offer to buy Brocade Communication Systems, based in San Jose, Calif., has been delayed due to a review by the Committee on Foreign Investment in the United States, which reviews international deals that raise concerns about national security.
Any deal to acquire Qualcomm would also receive close scrutiny, experts say. “Anything that has the word semiconductor in it gets rapt attention from CFIUS,” said James Lewis of the Center for Strategic and International Studies, a policy think tank. “The move to the U.S. is an effort to tamp down CFIUS concerns.”