Apple may anoint the winner of Broadcom’s $105 billion bid for Qualcomm. A dispute over iPhone royalties left Qualcomm vulnerable to an opportunistic offer from its acquisitive rival. If Apple settles its dispute, it could preserve Qualcomm’s independence — but it all depends on whether Apple thinks a bigger Broadcom would be slavishly devoted to its devices, or just surlier.
Qualcomm and Apple came to blows over royalties that the chip maker collects on mobile gadgets, most of which use its technologies. The actual payments aren’t disclosed, but analysts generally peg them at about $10 per phone. When Apple sued Qualcomm and told its suppliers to stop paying these fees this year, it helped push Qualcomm’s share price down by $10 per share, in subsequent months, to the $54.84 at which it traded last Thursday, the day before Broadcom’s interest was reported.
Settling the lawsuit might make Broadcom’s bid of $70 per share less compelling. Analysts project Apple should sell around 250 million phones next year. If it agreed to a lower royalty payment of, say, $7.50 per phone, with a post-tax margin of 85 percent, that would yield almost $1.6 billion in profit. Put this on a multiple of 10, and that’s worth about $16 billion — or roughly $11 per share. And that’s before any catch-up payments for previously withheld sums that Qualcomm might be able to claw back.
Should Apple play along? It depends on which chip maker it considers the more malleable counterpart. Broadcom’s chief executive, Hock Tan, is said to be open to renegotiating the Qualcomm contract should his company prevail. The promise of $3 billion in annual cost savings from the merger more than defrays the opportunity cost of giving Apple a good deal. Winning the good graces of Tim Cook, the Apple chief executive, might also result in additional chip sales to the tech giant.
Whatever Mr. Tan says, though, his priority is likely to be maximizing the returns on his new acquisition. A big motivation for acquiring rivals is usually gaining heft over customers, and Broadcom already derives over 10 percent of its revenue from Apple. Furthermore, the lengthy antitrust process for a Broadcom-Qualcomm merger means it might be a year before Mr. Tan could negotiate properly anyway. The iPhone maker may prefer its serfs smaller and more squeezable.
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