Qualcomm is going to do whatever it takes to fend off Broadcom

Qualcomm is going to do whatever it takes to fend off Broadcom

That's in spite of the 28% premium that Broadcom's offer places on Qualcomm's closing price Thursday, the eve of the first news report on the deal.

The proposal by Singapore-based Broadcom, which has announced plans to return its domicile to the United States, would consolidate two major players in the semiconductor sector.

"We would not make this offer if we were not confident that our common global customers would embrace the proposed combination", said Broadcom CEO Hock Tan. Given the increasing complexity and cost in new generation semiconductor design and manufacturing, we believe that the increased scale and product and end market diversification would potentially drive stronger profitability metrics for a combined entity.

Qualcomm has acknowledged receipt of the "non-binding, unsolicited proposal" and will assess the offer.

The deal is the most ambitious move by Tan, who is known for adding to his companies through acquisitions and cost-cutting.

Broadcom, meanwhile, is seeking to buy U.S. rival Brocade Communications in a deal being reviewed by Washington. Qualcomm itself is in talks to take over NXP Semiconductors.

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Combining the firms would create a behemoth with some $51 billion in revenues, including those from NXP.

In a report a year ago, the China-based benchmarking company AnTuTu ranked Qualcomm's Snapdragon 820 system-on-chip the leader in the global smartphone processor market, with more than 21 percent of the market.

Qualcomm has been facing a series of investigations around the world linked to its dominance in the smartphone chip segment. China and South Korea have already imposed heavy fines. Qualcomm chips power numerous world's top smartphone models, including the Samsung Galaxy S8 and S8 Plus, and the Google Pixel 2 and Pixel 2 XL.

Moreover, Qualcomm is mired in a long-running legal battle with Apple over royalties payments, something which is not expected to be resolved anytime soon. It says that Qualcomm is not that likely to accept this first offer from Broadcom.

"The potential merger raises significant questions surrounding the hard takeover of NXP by Qualcomm and much is still to be discerned regarding the value of the Qualcomm patent holdings and its associated lucrative high-margin revenue stream".

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