What's in store for Qualcomm investors in 2018?
Will the Qualcomm-Apple licensing dispute resolve in 2018?The year 2018 could be an important one for Qualcomm’s ( QCOM) investors.
Many analysts believe that Qualcomm and Apple ( AAPL) could reach a settlement in 2018 as both of them depend on each other. Qualcomm can’t afford to lose a customer like Apple, and Apple would be stuck with Intel’s ( INTC) lower-performance modems and delays in supply if it were to ditch Qualcomm. Even if Apple builds modem solutions in-house, it won’t be able to replace Qualcomm’s modem in the near term.
If Apple wins the case, Qualcomm’s licensing revenue will fall significantly, followed by several other licensing renegotiations. Apple’s strong cash flows give it the upper hand to force Qualcomm to settle.
Qualcomm-NXP deal Amid licensing disputes and regulatory fines, Qualcomm’s NXP Semiconductor ( NXPI) acquisition comes as a relief to Qualcomm’s investors. The acquisition will add $9 billion to Qualcomm’s annual revenue, more than offsetting any negative impact from the ongoing litigations against Qualcomm’s licensing model.
However, the NXP acquisition has been delayed as activist investor Elliott Management has demanded a better price per NXP share considering the changed semiconductor environment. NXP’s stock price has risen to $117, far above Qualcomm’s offer price of $110.
Qualcomm needs to tender 80% of NXP’s shares to close the deal. However, the percentage of its shares being tendered is falling every month. Qualcomm will most likely increase its bid price and complete the NXP acquisition by 1Q18. Analysts believe that Qualcomm will benefit even if it boosts its offer price to $125 per NXP share.
The completion of the NXP acquisition should boost Qualcomm’s stock price in 2018.
Qualcomm-Broadcom deal Amid all this, Broadcom ( AVGO) has made a hostile takeover bid of $70 per Qualcomm share. This bid values Qualcomm at $105 billion. Even though Qualcomm’s board has unanimously rejected the offer, Broadcom is adopting hostile methods to acquire Qualcomm.
Broadcom and private-equity company Silver Lake Partners nominated 11 directors for Qualcomm’s board, and the latter rejected all of them on the grounds that the nominees are “inherently conflicted” given Broadcom’s desire to acquire Qualcomm for a price that undervalues it.
According to a Bloomberg report citing people familiar with the matter, Broadcom may raise the bid price for Qualcomm after the NXP acquisition is sorted out and regulatory approval is received. The year 2018 will determine whether Broadcom succeeds in its hostile takeover of Qualcomm or pursues some other acquisition. Nomura analyst Romit Shah believes that Teradyne ( TER), Cirrus Logic ( CRUS), and Maxim Integrated ( MXIM) are other potential acquisition targets for Broadcom.