By Sharan Mujoo
On Monday, 6th November, the semiconductor giant Broadcom announced an unsolicited $103 billion bid to acquire fellow competitor Qualcomm. If the deal goes through, it will have huge implications for the smartphone industry.
The present scenario
Broadcom is a manufacturer of chips which are used in smartphones, laptops and data centre components amongst other things. Intel and Samsung currently hold a major chunk of revenue share in this market. However, if this deal goes through, it stands to give the combined entity an approximate 65% share in the handset semiconductor market.
This comes at a time when Qualcomm is already trying to buy NXP, another semiconductor behemoth. Even though Broadcom is okay with Qualcomm’s move, the European Commission’s fears over competition hinder the completion of this deal. Such mergers can give the integrated entity a monopoly over the market, thereby giving the ability to dictate prices. Unless these apprehensions are taken care of, it may be some time till we see this deal go through.
Issues with the merger
Qualcomm is already in a bother of hot water with Apple and the US Federal Trade Commission. The separate lawsuits have marred the first half of the year for the chipmaker. Qualcomm has been alleged of unfair and anti-competitive strategies, coercing phone makers into buying their chips at unfair prices. Therefore, it makes for an interesting time for Broadcom to launch a bid.
In May, Samsung and Intel also supported the US Federal Trade Commission’s claims by filing briefs. An excerpt from Intel’s blog Policy@Intel written in the same month states “Today, Intel filed an Amicus Brief in opposition to Qualcomm’s motion to dismiss the FTC’s complaint. Because the FTC’s attempt to shed light on Qualcomm’s anti-competitive practices is of great importance to the industry as a whole, several other companies and trade associations also have filed briefs supporting the FTC. Intel’s brief, in particular, illuminates the adverse impact that Qualcomm’s conduct is having on competition and innovation, and explains how that conduct violates the antitrust laws in several different ways.”
The Curious Timing
Qualcomm’s share prices tumbled early in January when these lawsuits were filed. Since then the shares only recovered substantially when Broadcom announced their bid. A low share price could be the reason for the timing of the move. It’s reported that Broadcom is offering its own shares at an inflated value which makes the timing even more intriguing. This merger could ease the apprehensions between Apple and Qualcomm.
Qualcomm meanwhile has been dismissing claiming patent infringements by competitors and phone makers. It is a complicated situation as there is no international body which regulates and enforces anti-trust laws. It could be a turning point for the chipmaker as it faces decisions which could drastically change its future. What the future holds remains to be seen, however, the next few months could potentially decide the next decade of this industry.
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