High Risk, High Reward Qualcomm Takeover of NXP

by Daniel Mandell | 11/04/2016

The embedded processor space continues to see rapid consolidation seemingly quarter after quarter. Last week, Qualcomm propelled itself to the forefront of a number of new industries with the $47B acquisition of NXP – the largest acquisition in the semiconductor market’s history. The leading driver for the acquisition is the rich growth prospects of the automotive market and the (Industrial) Internet of Things. From a sheer sense of scale, Qualcomm is taking on a company with more employees, products, and customers than itself. Whether or not the new behemoth can efficiently integrate and maintain momentum in its traditional stronghold markets will be a massive undertaking that will decide who tops the embedded processor share charts for years to come (or likely at least until the next multibillion-dollar acquisition).

Just last year, we were reflecting on our impressions of NXP’s acquisition of Freescale Semiconductor. While there were many synergies between those businesses at the time, the primary concern then was that NXP had, until that point, done little to facilitate software development on its MCUs and other hardware and it was unclear how it would handle with Freescale’s software assets and developer community. Freescale had invested significantly into its software leading up to its buyout and NXP did well to maintain and expand upon these resources and culture. However, the acquisition by Qualcomm now could challenge the newly combined entity in maintaining focus and core competencies while trying to align and reconcile different businesses – particularly as integrations are still fresh and developing between the Freescale and NXP portfolios and management.

Nevertheless, this acquisition could very well be Qualcomm’s ticket to diversification and stronger long-term revenues. By acquiring NXP, Qualcomm greatly extended beyond its traditional footprint for processor packaging and addressable verticals – especially within automotive, where Qualcomm has, until now, focused on only infotainment, telematics, and wireless electric vehicle charging. The acquisition grants Qualcomm a strong play in ADAS and autonomous driving with its new embedded MCU and SoC platforms. Autonomous vehicles themselves are not a large near- or mid-term market opportunity, but the acquisition of NXP will certainly give Qualcomm a boost supporting V2V and V2X applications in which the combined entity could serve a much bigger embedded processor market opportunity in the near term.

Qualcomm may have bought itself market share in new industries, but the company’s strengths in connectivity and mobility are not subject to only smartphones, other consumer devices, and networking infrastructure. Combined with its insight and influence of the development of 5G technologies, Qualcomm has the ingredients to provide advanced connectivity solutions for a wide variety of IoT deployments even as more formal standards are fleshed out globally. The acquisition may have cemented Qualcomm’s leadership in the future of IoT and embedded devices, so long as the company does not stall in these critical next few years as competitors such as Intel and Renesas further establish themselves with automakers. Declining growth in the smartphone market may have driven Qualcomm towards this risky endeavor, but the potential payoff could be its emergence as a new superpower in the embedded world.

View the 2017 IoT & Embedded Technology Research Outline to learn more.

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