Qualcomm spends $47 billion to buy NXP Semiconductors

qualcomQualcomm is writing a $47 billion cheque for NXP Semiconductors in a move which will help it to expand into new industries and become less dependent on  smartphone chips.

NXP is the biggest supplier of chips used in the automotive industry. The deal will be funded with cash on hand as well as new debt.

The deal is the largest in the chip industry’s history and the Dutch outfit is NXP is strong in that sector following its acquisition last year of Freescale Semiconductor.

Qualcomm supremo Steve Mollenkopf said it was no secret that that the company has  been looking around.

“If you look at our growth strategy it’s to grow into adjacent markets at the time that they are being disrupted by the technology of mobile.”

He claimed that the two companies, which will have combined revenue of more than $30 billion, will have products that are capable of winning sales in markets worth $138 billion by 2020. Qualcomm forecast $500 million of annual cost savings.

The equity value of the transaction is $38.5 billion. Including debt, the enterprise value goes up to $47 billion.

Chief Financial Officer George Davis said the acquisition will add $11 billion of debt to Qualcomm’s balance sheet, which can rapidly improve by using the overseas cash it generates to pay down.

Mollenkopf said he will aim to combine the two companies and their products as quickly as he can and make sure that the management of the combined company has representatives from both sides.

Mollenkopf has more than $30 billion in cash reserves, most of which is held overseas.

NXP is projected to report 2016 sales of $9.48 billion, the average of analysts’ estimates from data compiled by Bloomberg.

By revenue, that makes it less than half the size of Qualcomm, which will report sales of $23.2 billion this year. The Dutch company has averaged about 11 percent growth over the past three years, while the U.S. chipmaker’s sales declined 5 percent last year, a collapse from a revenue increase of 30 percent in 2013.