Please ensure Javascript is enabled for purposes of website accessibility

Qualcomm Just Made a Massive Play in Automotive Technology

By Chris Neiger - Nov 5, 2016 at 9:03AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company's pending purchase of NXP Semiconductors will thrust Qualcomm to the forefront of the automotive technology race.


Image source: Getty Images.

It seems as though the automotive technology market is experiencing a wave of consolidation. Qualcomm's (QCOM 0.40%) recent announcement that it's buying NXP Semiconductors N.V. (NXPI 0.32%) for $39 billion comes less than a year after NXP bought up Freescale Semiconductors, a major supplier of automotive processors.  

NXP's purchase of Freescale made it the largest supplier of automotive semiconductors in the market, with 14.5% market share. That, along with NXP's recent debut of its semi-autonomous driving technology (more on that later), made the company a formidable driverless car tech play. Now all of that will soon belong to Qualcomm. 

And if you add Qualcomm's own automotive cellular connectivity technology into the mix, it becomes increasingly clear that the company is poised to be a major player in the auto tech space. 

The easiest way to enter new markets

Up until the NXP deal, Qualcomm's only automotive play was in selling its wireless modems to automotive companies. Now the company could sell even more of these chips because it believes it'll have even more access to automotive customers than before. That's great for Qualcomm's current automotive pursuits, but the NXP purchase will also help the company entire entirely new automotive tech segments. 

NXP manufactures its own chips and sensors and sells them to automotive companies and automotive suppliers to be used in for everything from temperature tracking to advanced driver assistance systems. The 14.5% automotive semiconductor market share the company holds is by far the largest of any company, with its closest competitor, Infineon Technologies, taking 10% of the market.

So with Qualcomm's proposed purchase of NXP, the mobile processor maker gets all the benefits of having a dominant automotive semiconductor position, without having to slowly build it out over many years. That's great news for Qualcomm, because the automotive semiconductor market was worth $29 billion in 2015, according to IHS, and is expected to grow at a compound annual growth rate of 8% through 2020, according to IDC. 

But what the deal will also bring Qualcomm is a bet on the future of semi-autonomous and autonomous vehicles. Aside from making chips, NXP also had recently released its own off-the-shelf driverless car system, called Bluebox. The technology comes with sensors, camera, algorithms, and processors that allow automakers to essentially bring semi-autonomous features to their vehicles very quickly. NXP says it'll allow automakers to "design, manufacture, and sell Level-4 self-driving cars by 2020." NXP's automation levels are based on the Society of Automotive Engineers standards, which define Level 4 as a "high level" of automation, just under Level 5's "full automation."

A smart move

Qualcomm has relied on the mobile market for much of its existence. Aside from licensing fees, selling mobile processors and baseband chips (for cellular connections) has been its primary revenue source. 

There's certainly more money to be made from mobile, but the latest data shows that sales of smartphones are slowing down, and the explosive growth that companies experienced in the past may be over. Gartner reported recently that smartphone sales are continuing to slow and will no longer grow at double-digit rates.  

Meanwhile, the need for more automotive technology is on the rise. Between now and 2035, nearly 76 million vehicles will be sold with some level of autonomy.  And once we reach 2035, the market size for semi- and fully autonomous cars will be with $77 billion, according to Boston Consulting Group. 

It may take some time to see how well Qualcomm plays this out, and how easily it can adapt from being a chip designer to owning chip manufacturing. But if Qualcomm executes its purchase of NXP Semiconductors well, then there's no reason it shouldn't benefit from all of this automotive technology growth.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$132.12 (0.40%) $0.52
NXP Semiconductors N.V. Stock Quote
NXP Semiconductors N.V.
NXPI
$180.69 (0.32%) $0.58
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$674.90 (1.66%) $11.00
IHS Markit Ltd. Stock Quote
IHS Markit Ltd.
IHS.DL
Gartner, Inc. Stock Quote
Gartner, Inc.
IT
$250.20 (0.06%) $0.16
Infineon Technologies AG Stock Quote
Infineon Technologies AG
IFNNY
$29.89 (1.29%) $0.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.