Qualcomm has been one of the most innovative companies of the 21st century. Their patent portfolio is large and they command a very large market share in the mobile device industry- one of the most competitive places for a company to try and earn revenue.
So it was no surprise that revenue growth has slowed over the past two years after being robust. The mobile device market has simply started to mature and fall into predictable production patterns.
Where then should the company move towards? Well it appears that like Google, which had some trouble explaining to company followers why it was in some cases just pulling open source ideas of the Internet to follow up on, it isn’t always possible to state that a company will be 100 percent innovation-driven.
The $47 billion dollar deal that was announced this week with NXP to acquire their company therefore makes a lot of sense. Qualcomm gets a huge piece of their leg in the door of the automotive market, while NXP gets even more manufacturing leverage and access to the type of organization that can only help it innovate more.
Another positive is that as NXP is located in the San Francisco Bay area, Qualcomm will have even more access to Apple and Google, two of its largest clients already. Both companies plan to start producing cars over the next decade and even the CEO of Mercedes has been scouting out locations near San Francisco in order to find a place to eventually become part of a manufacturing and development cluster that may supplant Detroit in its ability to create automobiles that capture the public’s imagination.
Google’s play in the market is based on the concept of a car that will not require a driver because it is completely driven by sensors and computers. The way the cars are constructed, the more sophisticated that they become, the more of a market Qualcomm will have. The cars are actually close to being ready for sale, with Uber already using them in their fleet in Pittsburgh, PA.
If the market for self-driving cars takes off, an industry that is worth about 30 billion dollars a year right now could triple within the next few years, while financial services like title loan websites start to provide coverage for a new class of vehicles.
Is it manageable?
The only real question that observers have about the merger, aside from some grousing about the potential, is how well will Qualcomm be able to execute the assimilation of NXP. As NXP currently matches Qualcomm in physical size and number of employees, will the eventual transition to all Qualcomm management be optimized enough so that market results do not represent anything more than a graft onto the San Diego-based company’s trunk? If history is any indication, Qualcomm is certainly one of the best-suited companies to take up that type of challenge.
Overall, Qualcomm is now positioned for future growth in ways that it wasn’t just a few weeks ago. The move towards a high-growth industry should give them the space that they need to bring more of their own concepts into the marketplace.