Qualcomm (NASDAQ:QCOM) recently abandoned its planned purchase of NXP Semiconductors (NASDAQ:NXPI), ending nearly two years of drama involving belligerent NXP investors, a hostile takeover attempt by Broadcom, and resistance from Chinese regulators.

Qualcomm, the world's top mobile chipmaker, would have become the world's biggest automotive chipmaker if the $44 billion deal had been approved. It would have pivoted Qualcomm's chip business away from the smartphone market, which faces a market slowdown and tough competition from cheaper chipmakers like MediaTek, and would have also strengthened the company's wireless patent licensing business, which is besieged by regulators and OEMs demanding lower licensing fees.

A smartphone scanning a circuit board.

Image source: Getty Images.

Unfortunately, NXP investors weren't eager to clear the deal, tendering just 5.3% of their shares at the time of Qualcomm's final extension of its cash tender offer. At least 70% of those shares had to be tendered. Chinese regulators also refused to approve the deal amid escalating trade tensions with the US.

My Foolish colleague Anders Bylund recently examined the fallout for NXP. Today I'll discuss what happens next for Qualcomm.

A $2 billion breakup fee

Qualcomm will pay NXP a $2 billion breakup fee. That's equivalent to 9% and 21% of Qualcomm and NXP's projected revenues this year, respectively. The payment will boost NXP's cash flows, but the chipmaker's stock still dropped nearly 6% on July 26 after Qualcomm walked away. NXP's stock price of about $93 remains well below Qualcomm's final offer of $127.50 per share.

Qualcomm finished the third quarter with $35.9 billion in cash and marketable securities, representing a 9% decline from the second quarter and a 5% drop from the prior year quarter. Its payment to NXP will exacerbate those declines in the fourth quarter, but it won't break the bank.

A $30 billion buyback

Instead of pursuing another big acquisition, Qualcomm will replace its existing $10 billion buyback authorization with a new $30 billion plan, the majority of which will be executed before the end of fiscal 2019 (next September). That's equivalent to over 30% of the company's current market cap, and more than 40% of its enterprise value.

That massive buyback would make Qualcomm's stock, which trades at 16 times next year's earnings, much cheaper. That declining valuation, combined with its high forward dividend yield of 4.3%, could set a firm floor under the stock at these levels.

Yet I don't think a massive buyback is the right move. Qualcomm still needs to diversify its business away from mobile chipsets and wireless patents, and buying smaller Internet of Things (IoT) companies like Cypress Semiconductor (NASDAQ:CY) or CalAmp (NASDAQ:CAMP) could be a smarter long-term strategy.

Network connections across a smart city.

Image source: Getty Images.

Cypress dominates niche chip markets like wireless IoT chips, NOR and SRAM memory chips, USB-C controllers, and auto instrument cluster microcontrollers. Buying Cypress, which has an enterprise value of just under $7 billion, would expand Qualcomm's reach in those growing adjacent markets.

CalAmp, which has an enterprise value of about $800 million, provides telematics solutions for connected cars and industrial machines, which help companies track, analyze, and control machines via its cloud services. Those solutions would complement Qualcomm's growing portfolio of IoT products, which generated $1 billion in revenues in 2017, and expand its software ecosystem.

Falling behind in connected cars

Qualcomm nearly became the 800-pound gorilla in connected and driverless cars. But without NXP, it looks like an underdog compared to NVIDIA (NASDAQ:NVDA) and Intel (NASDAQ:INTC).

NVIDIA established a first mover's advantage in the auto market with its Tegra CPUs for infotainment and navigation systems, and its Drive PX platforms for driverless cars. The chipmaker generated $563 million in automotive chip revenues over the past four quarters. Qualcomm's Snapdragon Automotive chips compete against NVIDIA's Tegras, but it needed NXP's BlueBox platform to counter Drive PX.

A woman sits in a driverless car.

Image source: Getty Images.

Intel is currently developing a competing driverless platform with BMW, Fiat Chrysler, and its own subsidiary Mobileye. It also owns several other computer vision companies like Movidius, which helps drones, cameras, and headsets "see" their surroundings. Intel's fusion of those technologies with its Atom Automotive chips could dampen Qualcomm's automotive ambitions.

Wasted time and wasted money

Qualcomm took its investors on an aimless two-year ride driven by promises of dominating connected cars, but ended back at square one with a $2 billion bill. The chipmaker is trying to appease investors with a $30 billion buyback, but that cash would be better spent on pivoting its business away from mobile devices with fresh acquisitions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.