As we had earlier discussed on several occasions, businesses across the globe are riding high on acquisitions, and reports are doing the rounds of yet another acquisition. A point to be noted is that of all the acquisitions, most are happening in the technology sector. These acquisition sprees are suggesting the start of another trend in quest of innovation.
The traditional practice has been to search for new skills through recruitment of new talents and encouraging the R&D department. But the new trend is first find out what the market is looking for, and then acquire a start-up or a smaller company working on that topic and release their product with the big brand name. This is a relatively smart decision, as it saves time and money invested in talent hunts, and also does away the probability of wrong recruitments and failed experiments. Let us find out the new star in the acquisition arena.
The Qualcomm Acquisition
CSR (CSRE), which recently rejected a $2.5 billion takeover offer from Microchip Technology (MCHP), has just been bagged by Qualcomm Inc. (QCOM) for $2.5 billion.
CSR is a U.K.-based company engaged into designing chipsets and components used in mobile phones and satellite navigation systems. The company is also designing components for hands-free driving headsets and Bluetooth technology, which connects one device with another without any physical connection. The offer made by Qualcomm for CSR stands at 40% higher than its current trading prices before the news of the acquisition was declared. In a press release, Qualcomm acknowledged the acquisition of CSR's expertise in the Internet-of-Things and automobile infotainment.
This acquisition will certainly add more depth and variety in Qualcomm's current offerings by adding products, channels, and customers in the important growth categories of Internet of Everything (IoE) and automotive infotainment. This move will bolster Qualcomm's desire to take leadership in this business domain and allow it a strong foothold in this niche sector. This opportunity is in line with Qualcomm's strategic priorities in these rapidly growing business areas.
What's in and what's out in this acquisition
Last week, Microchip had pressed the panic button setting of the alarm about an industry correction in semiconductors market. They had made a bid to acquire CSR last August, but CSR reportedly turned down their offer stating that their offer was too low to be considered; however, the reason for the rejection going by market speculation and street analysts seem to be different. The buzz is that Microchip was motivated to make CSR party to a tax inversion deal, allowing Microchip to house income in the U.K.'s lower tax jurisdiction. Now that Qualcomm has bagged CSR and the reports have been confirmed by Qualcomm officially the Microchip deal stands null and void.
Qualcomm manufactures digital communications products based on CDMA, OFDMA and other technologies for use in voice and data communications, networking, application processing, multimedia and global positioning systems. The company earns revenue from the sale of integrated circuit products and licensing of its patents, software and other intellectual property. For the quarter ended June 29, 2014, Qualcomm reported revenue of $6.8 billion, up by 9% from the same period last year. Net income of $2.2 billion was up 42% year-over-year.
The recent surge in demand for the latest range of smartphones has put Qualcomm into the leaders' throne in the sector; its chips can be found in Apple's (AAPL) iPhone 6, Samsung's (SSNLF) Galaxy Note 4 and BlackBerry (BBRY) Passport and a range of latest smartphones and tablets. With a market capitalization of $120 billion the company trades at 16 times forward earnings. CSR's expertise in designing and manufacturing chipsets and components customized for the Internet-of-Things would enhance the product spread of Qualcomm in the niche sector of Integrated Chipset designing and manufacturing. Thus placing Qualcomm in the fast lane among its peer group competitors.
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The Crux of this Acquisition
Qualcomm's $2.5 billion acquisition of CSR has severed a massive blow on its arch rival Microchip; Microchip was also in the run to woo CSR but failed to make the relation work, and Qualcomm swept away the CSR deal. Both CSR and Qualcomm would benefit from the ongoing mammoth upswing in smartphone market demand and the corporate frenzy that is going around Internet-of-Things.
Though Qualcomm stock prices at current levels might seem on the downside, this dip is not exclusive to the chipmaker, but a result of the ongoing market corrections which is bound to rebound ones the correction phase is over. Going by the fundamentals of the company's business line and the kind of product mix it has to offer which is in perfect harmony with the ongoing market fanfare of smartphones and mobile communication devices, the company is bound to see brighter days in the near future. I would strongly recommend a buy at the current oversold levels and hold till the market correction phase is over post which time would be rip to encash the positions taken now.
About the author:reports.droyWe are a group of analysts exploring and analyzing different domains of business and writing reviews based on information available in public domain web portals. We do not hold a
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