Contact: Mark Fontecchio, John Abbott
All the chips get pushed to the middle as Qualcomm agrees to acquire NXP Semiconductors for $39.2bn. The massive deal is the largest ever in semiconductors, and the second-biggest non-telco tech transaction in the past decade, according to 451 Research’s M&A KnowledgeBase. It is also magnitudes larger than Qualcomm’s previous high-water mark, the $3.6bn purchase of Atheros in 2011.
Qualcomm and NXP’s combined portfolio looks unusually synergistic. The buyer is dominant in smartphones and wireless networking, while the target has leading positions in automotive (self-driving cars and in-car entertainment) and the Internet of Things (including mobile payments, security and sensors). Those are two major market segments where Qualcomm can apply its long-standing mobile expertise. A side benefit is that the addition of NXP will increase the number of components Qualcomm can sell to its existing smartphone customers. The recently introduced Snapdragon Neural Processing Engine and Zeroth Machine Intelligence Platform may also help extend NXP’s existing autonomous car activities. NXP has its own manufacturing fabs, while Qualcomm is mostly fabless, but there’s plenty of room for flexibility between the two models due to the range of devices in the catalog.
Today’s deal marks the fifth $15bn+ chip purchase since the start of 2015. NXP is valued at 5.5x trailing revenue. That’s well past the 2.5x median multiple on billion-dollar chip transactions in the past five years and right in the middle of the pack of the recent $15bn+ deals (see chart below).
According to the KnowledgeBase, semiconductor M&A since 2015 has seen four quarters of relatively modest activity ($28bn total) bookended by four quarters – two at the start of 2015, and two at the end of this year – of massive value totaling more than $165bn. The scale of recent consolidation in the semiconductor industry has been astounding. The nearly $90bn in M&A spending we saw last year was more than the previous four years combined. And now, remarkably, value in 2016 has already crested $100bn with two months to go.
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