Semiconductor threesome

With the recent news that Broadcom is considering making a bid for Qualcomm at a 27% premium over the opening stock price today, the merger mania is back on again. The two largest mergers in the semiconductor industry Broadcom/Avago and Qualcomm/NXP might be merging. The super merger will be valued at 104B$ total prior to Qualcomm buying NXP. Already in trouble with the EU, this merger could include or exclude NXP. Although the announcement of Broadcom moving its legal headquarter address from Singapore to Delaware, USA is likely to appease the US authorities, the merger is likely to face opposition in Europe, China, Taiwan and Korea.

Market dominance issues (Q2 Figures)

If a merger included all three companies the market situation in the semiconductor market would face the largest impact in the communication category. This does not include smartphones and similar products that we categorise as consumer products. The combined company would own close to 50% of the communication market, which will face scrutiny from the authorities. 

 

The issue becomes even bigger when viewed from a product perspective. The combined company would dominate the communication products category with over 70% market-share. Broadcom is already half the market while Qualcomm is the second largest player.

 

 

The product/market combinations produce create 3 large combos: Processing LSI to mobile, Communication products to mobile and communication products to the communication market. Those three combos can account for more than 60% of the revenue

Combined Financials: 

The combined company would be a very clear number 3 in the industry behind Samsung and Intel

Although a merger does not create a sum of all the numbers of the merging companies it can still be meaningful to look at the combined company. As can be seen from the combined revenue the new company would be growth challenged. 

 

 

None of the three companies has had stellar growth in a hot market.

 

 

 

The capital investments will be significantly lower than depreciations indicating contraction of manufacturing activity. The combined company will own fabs but it will be a fab light model.

The net Income will also be challenged, right now dominated by the difficulties of Qualcomm.

 

You can get the entire visual data report here: Broadcom, Qualcomm, NXP Merger

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