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March 7, 2018
By Bob O'Donnell
The $117 billion proposed takeover of Qualcomm by Broadcom would be the largest tech deal ever, combining two powerhouses that make the tiny, complex chips that run our always-connected lives.
And it's one you, as a smartphone user, shouldn't cheer on.
The deal, which has been hung up by U.S. regulators over national security concerns and fought by San Diego-based Qualcomm, threatens to stall the pace of change smartphone users have grown accustomed to.
To understand why, you need history. Qualcomm has been a key innovator in the modem and telecommunications world for more than 30 years. Along the way, the company developed a large number of patents surrounding early mobile phones, smartphones and their ability to connect to wireless networks. In fact, a large portion of the company’s profitability is thanks to the licensing fees it receives from other companies to use those patents.
As great as those patents may be, the company has become vulnerable, dragged down by lawsuits and regulatory fines. In January, the European Union fined it $1.2 billion, accusing it of bribing Apple to use its chips in iPhones and iPads. Qualcomm promised to appeal.
Some companies believe it has used its hard-earned but privileged position with its patents unfairly. Apple has sued Qualcomm, claiming it charged unfair prices for licensing in modem chips. Qualcomm is fighting that suit, and others.
Singapore-based Broadcom, formerly called Avago, is a very different animal. The large international semiconductor company has grown through an aggressive set of acquisitions over the years and prides itself on its role in Wi-Fi and Bluetooth chips, among others.
Culturally, and technologically, the differences between the two companies are profound. For most of its existence, Qualcomm has focused on rapidly evolving key wireless communications standards and technologies that have helped make the smartphone the ubiquitous and powerful tool that it is today.
It introduced both the first 4G, and most recently, 5G modems, highlighting its role at the leading edge of telecom technology.
Broadcom, for its part, is primarily focused on leveraging existing standards and creating lower-cost implementations of these standards. The company has built up its presence by purchasing companies — such as the original Broadcom, which Avago merged with in 2016 and then took its name — and then cutting costs and making the target's product more of a commodity.
A firm focused on driving down costs may sound like a good buyer, particularly of a company that's been getting dinged by fines and licensing disputes.
But the outcome may be less successful if the acquired company's value is building the extraordinarily complex technologies that create 5G technologies, the next generation of mobile and fixed connections that promise to power self-driving cars and super-fast cell phones. Without the kinds of advancements the culture of Qualcomm has created, the telecom industry would not be as advanced as it is today.
In fact, when it comes to critical technology infrastructure, like wireless networks, it’s essential to have companies that are focused (and willing to spend) on driving those innovations. Were Broadcom to purchase Qualcomm and apply the same principles it has to other acquisitions, the likely effect would be to dramatically slow those advances down, both through the company’s tactics as well as the likely departures of key employees who would be averse to working for Broadcom.
Ultimately, like all proposed acquisitions, the potential Broadcom Qualcomm decision will primarily be about the money. Shareholders will decide whether the proposed purchase price is fair and voice their opinions accordingly.
But if you're reading this on your smartphone screen, know that the outcome will likely change how that technology's descendants operate in the future.
The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.
Here’s a link to the original article: https://www.usatoday.com/story/tech/columnist/2018/03/07/why-qualcomm-broadcom-deal-wouldnt-great-you-smartphone-user/395862002/
USA TODAY columnist Bob O'Donnell is the president and chief analyst of TECHnalysis Research, a market research and consulting firm that provides strategic consulting and market research services to the technology industry and professional financial community. His clients are major technology firms including Microsoft, HP, Dell, and Intel. You can follow him on Twitter @bobodtech. |
