Qualcomm Makes $39B Bet on NXP

Qualcomm's $39 billion buy of NXP Semiconductors is big in every way but chip size, starting with the 34% premium the smartphone chip maker is paying over the share price.

The two companies have been in talks for months now, and the deal was announced Thursday morning. (See Silicon Shake-Up? Qualcomm & NXP Said to Talk $30B M&A.)

It's the biggest semiconductor deal ever, according to the The Wall Street Journal, and the second-largest tech deal behind Dell's acquisition of EMC. It creates the second-largest chip maker, in revenue, behind Intel, says the Investors Business Daily. And it gets Qualcomm Inc. (Nasdaq: QCOM) into a big new market: automotive chips for things such as driverless cars and the Internet of Things.

The move diversifies Qualcomm's position in the semiconductor space beyond smartphone chips and gets the company back into the chip manufacturing business, something it has been outsourcing. Today, much of Qualcomm's profits come from licensing wireless patents to mobile phone makers, but with the NXP deal, it acquires seven factories in five countries that are "fabs" -- i.e. produce chips from silicon wafers -- as well as additional facilities that package and test chips.

According to Qualcomm, the acquisition will expand its addressable market by about 40% to $138 billion in 2020, getting the company into the automotive, IoT, security and networking markets. NXP also has a strong position in near-field communications chips, which handle short-reach communications for point-of-sale terminals and more.

Qualcomm indicated the deal, which requires regulatory approval, isn't likely to close until late 2017 and will be financed using offshore cash and new debt.

Both stocks were up slightly in trading shortly after the deal was announced.

— Carol Wilson, Editor-at-Large, Light Reading