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Here’s How NXP Semiconductors NV (NXPI) Deal Would Benefit Qualcomm Inc’s (QCOM) Business

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Cowen & Company affirms confidence in the recently announced deal and sees it as highly favorable for 5G ecosystem

On Thursday October 27, Cowen & Company offered positive read on the recently announced merger deal between Qualcomm, Inc (NASDAQ:QCOM) and NXP Semiconductor NV (NASDAQ:NXPI). The firm sees the deal as highly positive for Qualcomm, which it had been suggesting since November. Following the deal, Cowen has iterated an Outperform rating on Qualcomm stock, along with a $74 price target. The price target calls for a 5.57% upside potential over the closing price of $70.09.

Cowen analyst commented, “While not without integration challenges (QCOM is fabless) is partially integrated with significant mfg operations), the bottom line is that we love this deal for QCOM and we have been suggesting for almost a year, since last November (QCT Better, QTL Worse), and five additional times in the intervening period.”

Given the considerable accretion to this deal and the fact that Qualcomm needs NXP, the firm is surprised that acquisition target, NXPI, would not push for a higher price. According to the firm, the deal brings an entirely new and fertile ground for Qualcomm, such as Internet of Things. Furthermore, as 5G technology takes shape, the deal would prove to be “highly synergistic” with the company’s ongoing efforts. “While many IoT devices will be low ASP commodities, Automotive and Industrial are IoT verticals that we see as more profitable for semiconductors, and this is precisely the exposure that QCOM gains with NXPI,” said Cowen.

Qualcomm’s connectivity and processing solutions combined by NXP’s analog, sensor and industrial networking capability could make QCOM a dominant player in automotive and industrial applications. Additionally, the deal also brings further leverage to the company in defining 5G ecosystem. All in all, QCOM stock is sure to have positive impact of the NXP deal as focus on smartphone units – iPhone specifically – will now be mitigated significantly, says the analyst.

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