Qualcomm-Atheros to propel 'combo' efforts

SAN JOSE, Calif. - Qualcomm Inc.'s surprising move to acquire Atheros Communications Inc. for $3.1 billion will enable Qualcomm to accelerate its efforts in the ''combo'' or integrated cellular-chip platform arena.

With the acquisition of San Jose-based Atheros, announced on Wednesday (Jan. 5), Qualcomm (San Diego) hopes to speed up its efforts to offer more integrated chip solutions for a new crop of mobile and tablet PC customers, including Apple, HTC, Motorola and others.   

The deal will also enable Qualcomm to enter into new markets, such as Ethernet, home networking, passive optical networking (PON) and others. Atheros also competes in the Bluetooth, WiFi, WLAN and other markets.

More importantly, with the help from Atheros, Qualcomm also hopes to fend off competitive threats coming from the likes of Broadcom, Marvell, TI and others. Still, there are some major integration issues between the two companies. And there are some overlapping products, especially in WLAN and the processor intellectual property (IP) spaces.        

As expected, Qualcomm has entered into a definitive agreement to purchase Atheros for $45 per share in cash, representing a value of $3.1 billion. The deal creates a company with combined sales of $11 billion, based on revenues from 2009.

As part of the plan, Atheros will become the new Qualcomm Networking and Connectivity group. Atheros’ current president and CEO, Craig Barratt, is expected to join Qualcomm as president of the group. He will report to Steve Mollenkopf, executive vice president and group president of Qualcomm.

The acquisition is intended to help ''accelerate our products beyond cellular,'' said Paul Jacobs, chairman and CEO of Qualcomm, during a conference call with analysts to explain the deal.

Without a doubt, Qualcomm is scrambling to expand beyond its cell-phone chipset market. The company is a powerhouse in the cell-phone chipset business-where it is the clear leader in the baseband segment-but it has struggled to find other engines for growth.

For example, Qualcomm has recently shut down its Flo TV mobile operation and sold the spectrum to AT&T. And it is struggling to gain traction in mobile WLAN, RF and LCDs. Qualcomm is devising a display technology called Mirasol. And Qualcomm's  Brew operating software (OS) technology is losing steam against the likes of Apple's OS, Android, among others.   

The company also hopes to jumpstart-and generate some new business-for its embryonic efforts in 3-D chips, augmented reality, peer-to-peer and other newfangled technologies. But most of those technologies are still in the embryonic stages and will take years to generate sales.

For now, Qualcomm is somewhat dependent on the topsy-turvey cycles in the handset market. And the average selling price (ASP) for its baseband chip products have been under pressure in recent times. Qualcomm recently reported revenue of $2.95 billion for the quarter ended Sept. 26, up 9 percent compared with the previous quarter and up 10 percent compared with the year-ago quarter. The company posted a net income for the quarter of $865 million, up 13 percent sequentially and up 8 percent year-to-year. Analysts were expecting Qualcomm's revenue for the quarter to be about $2.85 billion, according to Yahoo Finance.

Atheros recently said revenue in the third quarter of 2010 was a record $247.1 million, up 4 percent compared to $238.2 million reported in the second quarter of 2010. Third quarter 2010 revenue increased 58 percent compared to $156.6 million reported in the third quarter of 2009. The company recorded net income in the third quarter of 2010 of $28.1 million or $0.39 per diluted share. This compares to GAAP net income of $29.7 million or $0.41 per diluted share in the second quarter of 2010. Net income in the third quarter of 2009 was $38.6 million or $0.60 per diluted share.