Published in Processors

Broadcom takeover of Qualcomm appears to be about Apple

by on21 November 2017


Comment: Don your tin foil hat

This morning Apple’s official news agency Reuters ran a yarn about how beautiful life will be if Broadcom takes over Qualcomm.

It claimed that Broadcom’s $103 billion bid to buy Qualcomm would mean that there would be significant changes to Qualcomm’s patent licensing business.

Reuters claims that will make life much easier for regulators and “key customers” including Apple. Reuters claimed this would mean cheaper iPhones, forgetting that as iPhone sales fall Apple will raise prices to keep margins.

Reuters hacks were unable to say how Broadcom would revise Qualcomm’s practices. But it seems to suggest that Apple’s refusal to pay Qualcomm’s patent bill would be behind moves to take over the company.

Tinkering with Qualcomm’s licencing policy would slash the amount of cash the licencing division made. Regardless what you think of Qualcomm’s policies it has made the company rather a lot of dosh. If Broadcom changes these policies, then the value of its Qualcomm holdings would plummet.

Why would Broadcom make such a daft move? According to Reuters, it is because Apple is going to decide who is going to win this particular takeover. The winner will be whoever gets Jobs’ Mob onside.

For Broadcom to win, it would have to get big customers like Apple, saying that the move will not create antitrust hurdles. However, Apple could easily argue an opposite case. That would mean Qualcomm would have to roll over and do what Apple tells it to do on pricing – something it has so far refused to do.

Broadcom, on the other hand, has a long history being the sort of partner Apple likes. In its announcements over the takeover, Broadcom has repeated Apple’s claim that Qualcomm “double dips” over licences and claims the acquisition would be welcomed by regulators who want the practice abandoned.

But Apple is not stupid either. A fused Broadcom/Qualcomm would be more powerful and could dare to tell Apple to pay what everyone else pays. Apple has form as an evil monopolist and it knows how a more prominent company can bully suppliers.

The way the Tame Apple Press is reporting the take over seems to side with Broadcom’s takeover being a good thing. This means that Apple considers the long-term view is less important than putting the fear of Jobs into Qualcomm management.

“Broadcom Chief Executive Hock Tan would need to carefully pair any changes to the programme with cost cuts elsewhere, with Qualcomm’s annual $5.5 billion research and development budget seen as a prime target by analysts”, warned Reuters.

If Qualcomm gets scared and agrees to Apple’s demands, then Apple support for the Broadcom take over goes away. If one of the largest makers of smartphones has a problem with the takeover, then the ordinarily toothless US regulators will oppose it.

Settling with Apple will also see Qualcomm’s share price rise making it a harder take-over target for Broadcom.

All this does make the entire Broadcom take over to look like it is part of Apple’s attempts to make Qualcomm do what it is told. Lots of Apple flavoured elements are conspiring to make Qualcomm capitulate.

For example, revenue from the unit has declined from $7.9 billion in 2015 to $6.4 billion in Qualcomm’s fiscal 2017, mostly thanks to Apple’s and one of its allies suspension of payments.

Last modified on 21 November 2017
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