Why a Qualcomm takeover might be bad news for Broadcom Employees

Qualcomm has just released a statement about the Qualcomm Incorporated Non-Executive Officer Change in Control Severance Plan. 

In short, the plan is designed to calm the troops of Qualcomm while they are under hostile take-over threat from Broadcom. The plan is put into motion if there is a change in control of the company which includes a takeover by Broadcom.

The plan secures the employees below the executive level an extra severance pay if they are fired without cause within a two year period after the change of control. The severance pay is calculated by multiplying the numbers of years served by 2 weeks pay plus 4 to 16 weeks extra pay based on the level in the organization. Health care is covered for a similar period.

A midlevel employee with 10 years of service would get 28 weeks of extra pay while a high level employee with 20 years service would get 56 weeks of pay. High-level employees would get a minimum of 52 weeks pay irrespective of the number of years served while low-level employees between 26 and 2 weeks.

 

Qualcomm has taken a Poisoned Pill

To acquire a competitive company you need to pay more than it is worth but the logic should be that you are able to find synergies that can lower the costs of the combined company. The first casualties of the synergy process are staff functions and management positions. Apart from calming their own troops, Qualcomm has made it significantly more difficult for Broadcom to fire people following a merger synergy process.

 

 

 

This is further complicated by the pending Qualcomm acquisition of NXP and the fact that Broadcom has a significantly smaller number of employees than Qualcomm and NXP. It would be even worse for Broadcom if Qualcomm managed to finalize the NXP merger – then only 1 out of 7 employees would be Broadcom employees.

 

 

 

The Qualcomm plan can be seen here

You can find our merger factbook here

 

 

 

 

 

 

Micron keeps steaming ahead

Micron is the canary in the coal mine with its fiscal quarter ending mid calendar quarter. The quarterly result reveals that the memory boom is not over yet.

 

 

The strong quarterly revenue growth is not followed by any COGS growth, indicating that once more the growth is entirely price driven.

 

 

 

 

The yearly growth is slightly down year over year compared to last quarter but the quarterly revenue growth is still very strong and over 10% for the 6th quarter in a row.

 

 

 

 

Overall this has a massive impact on Microns operating cash flow and revenue.

 

 

 

 

 

 

 

 

 

 

 

 

 

An interesting signal in the Micron reporting is that the capital expenditure has increased by 55% quarter over quarter. Although Micron states this is according to the plan the Q4 capital expenditure signals a capacity increase after a few quarters of replacement level Capex spend.

 

 

 

Growth is still driven by the Compute and networking business and predominantly by DRAM to the data center.

 

 

Both Microns Flash and DRAM business are now dominated by the data center – in particular the hyperscale and cloud data centers. The gaming area is growing and includes DRAM for bitcoin mining.

 

You can find the 17-Q4 Micron Factbook here

If you are interested in using our research, data, and insights for your Corporate, Divisional, Investment or Purchasing Strategy, please contact Claus Aasholm

 

 

 

 

Strategic Selection of Automotive Suppliers in the age of Disruption

Selecting Semiconductor suppliers involves intense collaboration between highly skilled technical purchasers, component engineers and R&D engineers. Specs, parameters and features need to be evaluated for products launches that are several years out for cars that need to last for decades. While all of these activities are vital for successful design and manufacturing it is important not to neglect the strategic elements of supplier selection. This is of particular importance in the automotive industry where supplier decisions have impacts spanning decades.

The time from products are introduced to the time they become obsolete are measured in months making the supplier selection even more important. Most suppliers last longer than their products (unless they get acquired)

 

The overall business model of the Supplier

Semiconductor companies are built for revenue growth. Like sharks, they need to move to stay alive. Because of the massive investments and rapid deterioration of competitive technology, the need for growth is relentless. At the same time, Semiconductor investors expect double-digit returns every year. When semiconductor companies struggle to grow top line they start to grow the bottom line. They shift their focus from investment to optimisation of profit. As a customer, you can experience flat or even increased pricing even though the manufacturing costs keep decreasing. The stalled semiconductor supplier is betting on the cost of switching suppliers is too high for the customer.

A semiconductor company that fails to grow is also in danger of being acquired. As a customer, acquisitions are not your friends. Acquisitions increase the probability that products lines get killed or become low priority and the supplier is bleeding people with valuable knowledge key to keeping the product line alive.

Select suppliers that has healthy growth and invest in OpEx & CapEx. You can contact Claus Aasholm or use our semiconductor factbooks to help with your strategic selection.

The leadership position of the supplier.

Apart from the business model, it is key that the supplier is an expert within your market. All semiconductor companies want to sell their products but not all can help you innovate and understands your market in detail. Align yourself with the wrong supplier and you will have to teach them about your business. The first parameter in your supplier selection should be the supplier’s revenue and market share.

 

 

While NXP still has a leadership position it is also obvious that their position is under pressure in particular from new players like Samsung and Qualcomm signalling the change in automotive electronics from body and powertrain to infotainment and ADAS.

 

The expertise of the supplier

A good proxy for expertise is to understand how dependent the supplier is on automotive products. It is rare that a high dependence on automotive is not followed by a high level of expertise in automotive.

 

 

While Intel might have great products it is safe to assume that Nexperia knows a lot more about the automotive market in general. It will probably also be safe to assume that Intel knows a lot more about ADAS that Nexperia which is why it is also important to understand the product categories that each semiconductor supplier sells.

 

 

 

 

The Expert/Leader map for Automotive.

A simple way of getting an overview of the expertise and the leadership position of the supplier is the Expert/Leader Map. If a supplier both has high revenue and a high reliance on automotive revenue they are an Expert/Leader. Companies with lower revenue and high reliance on are experts while companies with high revenue and low reliance are leaders.

 

 

 

 

Not only are these tools relevant for supplier selection, they can also be used for supplier negotiation. Companies outside the Expert/Leader box tend to respond more constructively in negotiations once they have been shown the Expert/Leader Map. They are well aware that buying from Expert/Leaders are a better deal from an expertise perspective and are often willing to compensate. Information and data are vital for supplier negotiations.

None of these tools is meant to be absolutes but should be used in conjunction with the operational purchasing tools.

 

 

 

Is it sensible to attempt to combine 90 business cultures into one?

The possible combination of 3 large Semiconductor companies is an extremely risky business operation. Apart from the operational elements the distinct cultures of Broadcom, Qualcomm and NXP would collide and create tension for many years to come. Anybody who has ever worked in a Semiconductor company knows that the individual cultures live for decades after the CEO has declared the merger successful and stated that only one culture prevails.

 

This specific combination is between three companies that have a predatory history and have bought many companies over time. Our research covers the last 10 years and shows that this business combination involves 87 other company cultures bringing the total to 90. Although it is likely that several of these cultures have not survived, the triple merger is certainly a risky operation.

We have visualised the complete merger story as a Metro Map that by the way has a similar size as the Washington Metro.

 

 

 

If you are interested in using our research, please contact Claus Aasholm for more information