Qualcomm is a great American innovation story. Founded in 1985, it makes technologies used in every single mobile phone out there today. More than that, though, it's become one of the great US innovation hives, spinning out basic research that's used in billions upon billions of gadgets.
Now, "Broadcom"—we'll get to the scare quotes later—is trying to buy Qualcomm for a net $105 billion, the largest purchase of its kind ever, and a deal that would be a disaster for innovation.
OpinionsQualcomm has made some good bets—like the ones on LTE networking and the Snapdragon processors that power many smartphones—and some bad ones, like MediaFLO mobile broadcast TV and Mirasol, a color e-ink-like display. But the point is, it keeps making bets, which is what you need to do to innovate.
I've spent a lot of time with Qualcomm, and it's an admirably geeky organization. A thin layer of marketers keep giant piles of engineers barely under control. Sometimes the line between the two fades away completely, like with Sherif Hanna, Qualcomm's Twitter-scrappy modem marketer who also holds three patents for integrated-circuit design.
But Qualcomm's reputation among some of its largest customers, especially Apple, has worn thin because they believe Qualcomm is squeezing them for unreasonably high license fees on technologies required to make smartphones run. All three of the biggest smartphone makers—Apple, Samsung, and Huawei—now have their own chip divisions, and they either make their own modems or are working on it, but they're still in hock to Qualcomm for patent licensing.
An ugly, global battle with Apple over those license fees has battered Qualcomm's profits recently, leading a ghoul wearing someone else's face to swoop in with an unsolicited purchase offer. As Bloomberg notes, Qualcomm is in "a rare moment of weakness." An independent Qualcomm, I think, would rise from this challenge and diversify its product lineup. Chopped up and sold for parts, we'd lose a major American innovator.
Broadcom Wears a Mask
Broadcom is best known as a company that makes a lot of Wi-Fi and Bluetooth chipsets. It also makes some processors, like the ones in the Raspberry Pi. But the important thing to know about Broadcom is that it isn't Broadcom.
"Broadcom" is actually a company called Avago, a spin-off of Hewlett-Packard that, in recent years, has spent as much time and energy buying, dismembering, cutting costs on, and selling off parts of other companies as it has inventing things. This has resulted in great financial performance, but not so much in the way of innovation. The company is run by Hock Tan, who Fortune describes as a "finance geek," not an innovator.
This isn't always a bad or a good thing, in the big picture. There's a lot of consolidation going on in the chip industry right now, and if companies can come together in a way that preserves competition and improves their ability to create great products, I'd say more power to them.
But that's not the general opinion of Avago among technology-focused analysts. On Twitter, Patrick Moorhead of Moor Insights and Strategy, who has three decades of knowledge about chips, says "Broadcom would slice, dice, destroy."
Anshel Sag, also at Moor, says, "Buy. Chop up. Sell off. Raise prices. Rinse. Repeat."
How about Ben Wood from CCS Insight? "Still astounded this has even got this far."
Broadcom is also doing a suspiciously shifty thing right now in moving its nominal headquarters from Singapore to the US, possibly to avoid regulatory scrutiny over this deal. On Twitter, analyst Neil Shah of Counterpoint Research says this is a "smokescreen" where "core HR/finance" will still be controlled in Singapore.
Bloomberg quotes more Wall Street-esque analysts as saying that the Broadcom buy could smooth things over with Apple (Broadcom and Apple get along) and increase revenue. But there's nary a word in there about innovation, merely about squeezing more milk out of the existing cows.
And even if Broadcom doesn't want to sell off parts of Qualcomm, it may have to. The joined company's control over Wi-Fi chipsets may be so great it would trigger antitrust scrutiny, dragging both companies down a rabbit hole as they try to shed whatever parts would maintain competition.
Leave Qualcomm Alone
Reinvention comes out of struggle, if you let it. It's never healthy to be too dependent on one customer, and Qualcomm's balance sheet has been pumped up by those big, juicy iPhone license fees. The company's Apple business is going to dwindle further as Apple itself becomes a competitor: most smart analysts believe that Apple is building its own modems just like it does with its A-series processors, which would free it of dependence on Qualcomm and Intel.
So Qualcomm is innovating, hard. It's pushing down into chipsets for feature phones and "smart things," and up into core technologies for 5G. It's developed a tiny antenna, which might be the way to put 5G into phones, and IR dot-projector camera setups that can mimic Apple's Face ID on Android devices.
An independent Qualcomm could come out of its struggle with Apple with a new focus on 5G, and on the hundreds of millions of mundane and strange device that we'll connect to the internet over the next decade. A Broadcom-owned Qualcomm could be choked by cost-cutting and revenue optimization, and its staff scattered to the winds. I know which one I'd rather see.
