Broadcom (NASDAQ: AVGO) is contemplating a whopping $100 billion bid for Qualcomm (NASDAQ: QCOM), according to a recent Bloomberg report citing "people familiar with the matter." The deal, which would value Qualcomm at $70 per share, would be the biggest merger in chipmaking history, and turn Broadcom the world's third-largest chipmaker after Intel and Samsung.

The key facts

Qualcomm shares surged 13% on Friday after the report was published, but the stock remains down 5% for the year. That lackluster performance can be attributed to tougher competition in the mobile SoC market from cheaper rivals like MediaTek and first-party OEMs; ongoing probes, lawsuits, and fines regarding its patent licensing business; and an escalating legal battle against Apple which could lead to its components being dropped from future iOS devices.

Meanwhile, Broadcom has been an inorganically growing beast. The current company, which was formed from a merger between Avago Technologies and Broadcom in 2016, grew from a division of HP to a diversified chipmaking juggernaut.

Broadcom already supplies a wide range of mixed signal chips and wireless radios for mobile device makers (including Apple), so acquiring Qualcomm's industry-leading Snapdragon SoCs and royalty-generating patent portfolio would make it the 800-pound gorilla of the mobile chip market. But it would also inherit all of Qualcomm's legal problems, and Qualcomm's attempt to purchase of NXP -- which would make it the biggest automotive chipmaker in the world -- could also be blocked on antitrust grounds.

Does Qualcomm even want to be bought?

Qualcomm hasn't officially addressed these reports at the time of this writing. However, Bloomberg claims that the company plans fend off Broadcom's takeover attempt, declaring that the proposed bid undervalues it. Investors should keep a close eye on how this drama unfolds, since it could send ripples through the entire tech sector.

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The author(s) may have a position in any stocks mentioned.

 

 

Leo Sun owns shares of HP.

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