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Comment by TorKlingberg | Hacker News Reader

Interesting. All this consolidation in chip makers is going to hurt downstream device manufacturers. Apple and Samsung must be racing to make all the chips themselves before the Broadcom-Qualcomm giant can put the squeeze on them.

By the way, Broadcom's market cap is only $112B, so this must be either a highly leveraged buyout, or more of a merger in practice.

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From the article:

"Apple contends Qualcomm is unfairly charging too much and illegally taking advantage of its market position in chips. To heighten pressure on Qualcomm, Apple has stopped paying the licensing fees and is planning to design devices that exclude Qualcomm’s chips, a person familiar with the situation has said."

Qualcomm's problem is with their patents licensing respect to competing OEM's, not necessarily with chips sales, which is really a side business, IMO. One regulator, KFTC, has found that Qualcomm's "no license, no chip" is a no-no, but why would Qualcomm want to sell chips to customers who have no desire to pay for licenses?

Apple has to pay Qualcomm license fee for their patents either way -- whether Apple buys chips from Qualcomm, Intel, or otherwise. Apple is already receiving significant saving -- their royalty is based on the manufacturing cost that Foxconn charges Apple -- or about 1/3 of the retail price.

Some of Qualcomm's licensing practices are quite troubling -- no license to competitors, for instance -- but, with respect to Apple's lawsuits, I don't think Qualcomm will have to change their per-device royalty basis.

If Samsung bought AMD, too, it would be so interesting to see the competition unfold between them, Intel, and Broadcom/Qualcomm. AMD is going to be a $30 billion market cap company within 5 years, so I think Samsung should hurry up and purchase it now for 1/10 of what Broadcom paid for Qualcomm and 1/3 of what Softbank paid for ARM.

Apple and others are already divesting from Qualcomm and have been for some time. This merger most likely won't affect this situation. Apple will most likely effect the merger. Imagine buying up a company that is going to soon lose one of, if not, its biggest customer.

>or more of a merger in practice.

This my thinking as well. Qualcomm's product portfolio is on par or beyond what Broadcom is doing. I imagine this is an "easy" way to suddenly get world-class ARM and cellular modem products and all the world-class talent behind those products.

Maybe this is also an admission that Broadcom can't compete going forward. From my own experience, Broadcom chips and their firmware are by the far the most buggy and poorest performers I've worked with. Broadcom is the only OEM I know of with "special instructions" to put their products in production. Using a hypervisor? Turns out Broadcom cant write VMQ code, so you need to disable that feature. Using a Broadcom N wifi chip, good luck, as its poorly compatible with others and has endless performance issues. Broadcom bluetooth? Get used to disconnects and interference issues.

This might be a "buy to survive" attempt by Broadcom.

Apple is already making their own WiFi and Bluetooth Chip. And this will have happen whether these chips maker were consolidating or not. As a matter of fact, arguably it is because Apple making their own chips, the most luxurious piece of market is gone, and they will have to consolidate to survive.

In a leveraged buyout, the resulting business will need to generate profit to service the loans, over and above whatever its overheads are today.

Apple would still have to pay Qualcomm, Nokia, Ericsson and other wireless patent holders whether they make their own chips or not. While Qualcomm's chip sales (QCT) isn't small, most of their profit comes from licensing (QTL).

Apple is working hard to pay the minimum amount possible to Qualcomm through lawsuits and exploring shopping more parts from Intel. It remains to be seen how that will pan out, but it has certainly caused enough analysts to price down their stock considerably lately.

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