Former Qualcomm CEO Paul Jacobs, who’s now a board member, is in talks with “several global investors” to buy out the San Diego-based chip maker, according to media reports including the Wall Street Journal.
A potential partner in this deal is SoftBank
a Japan-based holding company with stakes in companies including semiconductor and software design company Arm, wireless provider Sprint
and e-commerce giant Alibaba
A buyout of Qualcomm
could drastically shift the landscape of the technology market, maybe even more so than an acquisition by Broadcom
would have. (The U.S. government scuttled an attempted takeover.) There are key differences in the two business deals, as the operational styles of Broadcom and SoftBank could not be more opposed. SoftBank fosters innovation and R&D, pushing the companies it acquires forward rather than initiating harsh cutbacks to drive profits.
I would expect that Qualcomm’s stated goal of $1 billion in cost reduction as part of its promise to shareholders during the Broadcom acquisition process would be reduced or removed if Jacob’s plan to bring in SoftBank were to succeed, increasing its investment into adjacent and leadership markets. Jacobs is the son of Qualcomm co-founder Irwin Jacobs.
The company with the most to lose in this rumored buyout would be Intel, as a combined Qualcomm and Arm technology house would add pressure to the many markets in which the three are competitive, including mobile PCs, the internet of things (IoT), automotive systems, data centers and more. Other Arm partners that license the Arm processor architecture for thousands of usage models would also potentially see problems with the deal as it could set up an antitrust hurdle.
Would CFIUS intervene again?
Now that the drama around the Broadcom acquisition has been officially halted on national-security concerns, Jacobs appears to be capitalizing on peak recognition on the value of Qualcomm to the mobile and technology markets with his drive for a buyout. There would clearly be another investigation from the Committee on Foreign Investment in the United States (CFIUS) if Tokyo-based SoftBank wanted to purchase the chip giant, but the parameters would look quite different.
The biggest part of the CFIUS claims centered on the presumed reduction in R&D and resulting fall-off of Qualcomm’s status as a leader in the mobile-technology space. SoftBank has a very different reputation and tends to let companies it purchases continue on their own path, augmenting them with additional income to finance growth opportunities.
SoftBank is one of the 50 largest holding companies in the world, as it owns outright or part of many technology and services companies. Those include Arm, Boston Dynamics, Sprint, Alibaba, Uber (plus several international ride sharing companies), Nvidia
and Brightstar, the largest mobile-device distributor. SoftBank now operates companies across a wide range of categories including broadband, telecom, e-commerce, finance, media and semiconductor design.
Qualcomm, Arm create an interesting combination
SoftBank’s ownership of Arm is particularly interesting when considering its rumored buyout of Qualcomm. Arm is the processor architecture provider to Qualcomm. While Qualcomm used to use this license to build its own customer cores, it has recently moved to licensing Arm-built designs with slight modifications.
Both Arm and Qualcomm independently develop processors for graphics, image processing, artificial intelligence and machine learning. Combining the expertise of both organizations would create a powerful competitor in the compute space.
Arm doesn’t currently develop modem technology, which is Qualcomm’s flagship technology area.
Arm and Qualcomm are fighting many overlapping fights against Intel and others.
• Arm and Qualcomm are both pushing for a new hyperscale architecture of processors to take market share in the data center space where Intel
has a dominant leadership position.
• Qualcomm is targeting Intel with its creation of the always-connected PC that combines mobile chips with standard Microsoft
Windows 10 for better battery life and persistent cellular connectivity. Arm has been helping in the marketing and development efforts.
• Arm and Qualcomm are building out technology and infrastructure for the growth of IoT and edge computing, a space that Intel is using its power-efficient processors.
• Both companies are creating systems for the automotive industry around autonomous driving and infotainment, competing against Nvidia, Intel and others.
The potential ownership relationship between Qualcomm and Sprint would also create a unique partnership potential. It would provide an outlet for early integration of key Qualcomm 5G (and forward-looking) wireless infrastructure and design. As Qualcomm improves modem technology, it would benefit by having a cellular carrier that is willing to adopt early, helping to maintain a leadership position over rivals Huawei and Intel.
There appear to be other potential synergies between Qualcomm and the current inventory of SoftBank-invested companies. Uber and other international ride-share services create potential for self-driving and infotainment integration; Boston Dynamics could use the artificial-intelligence (AI) and machine-learning capabilities in its robotics systems; mobile advertising and social networking system might be able to employ Qualcomm hardware for advanced services.
Conflict with Arm partners
Even with the potential upside, there are critical potential hurdles to get past with any proposed deal. First, the arrangement would have to go through a CFIUS review and with the very recent, very public result on Broadcom, the administration would have to clearly lay out why this is different from the previous conflict.
Past even the foreign investment risk is a potential problem with global trade regulation bodies that might view this as anti-competitive, combining the largest Arm-licensing partner directly with Arm. Additionally, NXP is another major licensee of Arm processor technology, and the near-final purchase of it by Qualcomm would elevate this risk.
SoftBank would also risk alienating other Arm partners with the buyout, including the likes of Broadcom, Huawei (HiSilicon), Samsung
and others. All would rightfully fear that Qualcomm would get preferential treatment and early (or sole) access to new, advanced technologies before the rest of the ecosystem. Arm is easily the most used processor architecture globally, so disruption to this business would be a serious concern.