Prominent Apple supplier and component maker Broadcom is considering an acquisition of fellow chipmaker Qualcomm for more than $100 billion, in what would be the largest-ever acquisition in the chip business. The news, reported by Bloomberg today, would value Qualcomm shares at around $70, and investors immediately responded enthusiastically by sending Qualcomm stock up nearly 14 percent in what Bloomberg says is the largest stock movement for the company in nearly a decade.
Why are stockholders happy? Well, Qualcomm happens to be in the middle of an ongoing existential crisis perpetuated by a legal showdown with Apple, which has long been a Qualcomm buyer for wireless modems that enable the iPhone to communicate with telecom networks. Qualcomm’s stock is down 16 percent this year, excluding the jump prompted by the Broadcom news today, and it suffered a staggering 90 percent drop in profit in its fourth quarter earnings released earlier this week. Qualcomm wrote at the time that its earnings were “negatively impacted as a result of actions taken by Apple and its contract manufactures.”
Apple currently uses both Intel and Qualcomm modem components, but the iPhone maker is now in a dragged-out legal fight over Qualcomm patents and the fees demanded to license the technology of those patents. Some of the patents are not for technology related to Qualcomm chips, but to underlying smartphone tech like power management and display features like Force Touch. Qualcomm, in suing Apple, says it is not obligated to license those like to does with industry standard technology. Apple, in suing Qualcomm, thinks the company is nonetheless overcharging for use industry standard patents, which the law requires be licensed out on fair, reasonable, and non-discriminatory (or “FRAND”) terms.
The saga kicked off nearly a year ago, in January 2017, when Apple first filed a lawsuit against Qualcomm for allegedly abusing its market position to extract more money from hardware manufacturers. A complex series of countersuits has ensued, ensnaring both companies in a messy and likely to be protracted legal showdown over arcane patent licensing and component contract deals.
Qualcomm has tried unsuccessfully to halt the sale of iPhones in both the US and China. However, it’s faced separate but related lawsuits and fines over its misuse of its market position from the US Federal Trade Commission and from regulatory authorities overseas, including a recent $774 million fine from in Taiwan. However, Apple may ditch Qualcomm altogether and develop future iPhone and iPad units that rely only on Intel modems, which would drastically affect Qualcomm’s bottom line.
Qualcomm may soon be extended a way out courtesy of Broadcom, which itself supplies Apple with Wi-Fi and Bluetooth combo chips. Broadcom recently announced it would move its corporate headquarters from Singapore back to the US, in a move championed by President Donald Trump. Qualcomm, based in San Diego, could become a key domestic asset for the company, as Broadcom already has a California co-headquarters in San Jose. It’s entirely unclear what would happen to Qualcomm’s legal fight with Apple if it does sell itself, but it’s likely Broadcom would settle the dispute to avoid incurring more legal costs.
A Qualcomm representative declined to comment.