By Steven Alvarez,
Money and Investing Writer
The prominent supplier of Apple Inc., Broadcom Ltd (NASDAQ: AVGO) has engaged in talks to buy out the chipmaking company Qualcomm (NASDAQ: QCOM). Qualcomm was an early pioneer in mobile phone chips, while also supplying “modem chips” to companies such as Apple, LG (KRX:066570), and Samsung (KRX:005930) that help phones connect to wireless networks.
Both of these companies are leaders in wireless communication chips so a buyout could make Broadcom a technology juggernaut. The acquisition would make it the largest acquisition of all time in the chip business. Broadcom is considering placing a bid of more than $100 billion for Qualcomm. This values Qualcomm at around $70 per share.
Qualcomm has not commented on entertaining this possibility, however, Broadcom has been considering a $70-$80 per share evaluation. The possible buyout has excited investors resulting in a 14 percent increase in Qualcomm’s stock. The company closed the day up 13 percent resulting in a market value of $61.81 per share. This gives the company a total value of $91 billion. Broadcom’s stock rose 5.5 percent for a market value near $112 billion.
Hock Tan, Broadcom’s Chief Executive Officer has played a key role in the wave of various acquisitions by the company. With the goal of consolidation, Broadcom has acquired $300 billion of the semiconductor industry over the last three years. Through these acquisitions, the company has built itself up from a former Hewlett Packard division into one of the largest chipmakers. The potential acquisition of Qualcomm fits in with the series of acquisitions that Hock Tan has executed to grow the company.
The move would either put Qualcomm as a subsidiary to Broadcom or dissolve Qualcomm entirely and merge the companies.
Broadcom has been mulling over the possible acquisition for some time. The company has recently switched headquarters from Singapore to the United States where it is co- headquartered in San Jose to avoid many regulatory issues.
A recent legal battle with Apple has left Qualcomm vulnerable because of significantly decreased profits. Legal dues have jeopardized the future of Qualcomm as their price per share has decreased significantly over the past few year. New management could hasten the legal battle with Apple and allow Qualcomm to better allocate their resources.
The legal battle started as Apple sued Qualcomm for charging too much and illegally exploiting their position in the chipmaker market. Qualcomm then sued Apple for lying to regulators to force opponents to charge less.
The acquisition would make Broadcom the third largest chipmaker, an industry that is consolidating rapidly, behind Intel Corp. and Samsung Electronics Co. As talks of this acquisition have spread, Intel shares went down more than 2 percent while stocks of both Qualcomm and Broadcom rose.
The acquisition would also make the company a vital supplier of phone components that include but are not limited to Wi-Fi and cellular modem chips.
The two companies have declined to comment in regards to the move, however, that does not mean that the move will not happen. Broadcom looks to become a juggernaut in the tech industry and the acquisition of Qualcomm aligns with their growing aspirations.
A version of this article appeared in the Tuesday, November 7th print edition.
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