Qualcomm (QCOM 0.73%) is in the process of acquiring Veoneer's (VNE) software segment for the auto industry, but Qualcomm is a hardware designer. How will it package this new software segment for its automotive partners? In this Motley Fool Live segment from "Wheeling & Dealing," recorded Oct. 15, Fool.com contributors Toby Bordelon and Nicholas Rossolillo discuss why software is an important component to making a technology sale.
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Nicholas Rossolillo: Kind of a weird merger and acquisition thing going on with this one, right?
Toby Bordelon: Yeah. It's fascinating they're only taking that small piece. I guess I see why they're doing it, like you'd rather have software than hardware. Especially in this industry, the hardware keeps changing and you have to keep iterating. An issue many people say Tesla is having because they're going to have to continue to improve their hardware and then what happens to people you promised full self-driving, so you've been on the hardware package. I would have thought someone like Qualcomm might want the whole thing but I guess not. What are they going to do with this? How are they going to package this?
Rossolillo: Yeah, it is interesting, and that's a good question. Maybe I can share another slide here just to offer one more context on what's going on. Because this is really small. I was surprised at the price tag. But more than the price tag, with the size of the business that we're talking about here. It's not going to do much for Qualcomm. Here's just a high-level view of a Veoneer's last quarterly earnings, total revenue 419 million. Not a really hefty price tag at $4.5 billion, but the system that Qualcomm wants is one thing currently within this active safety segment, that hauled in 206 million. I don't know how much of that is software though, because all that Advance Driver Assist hardware is in there too and I would suspect that most of it is the hardware.
I don't know what this is going to do to Qualcomm's results. But at Qualcomm's last quarter automotive was also a very small segment, 253 million total revenue in their last quarter directly to the automotive industry. These are really small numbers for Qualcomm. But I think this is ultimately about making their hardware more useful for automakers. Like that's the challenge, correct? If you want to sell hardware and supplies to the automotive industry, you have to make it really easy for them.
Bordelon: Presumably they could sell a chip package bundled with this hardware or with this software to automakers who could then integrate it with whatever hardware they want to use, or whatever direction they want to go with.
Rossolillo: I think that's the rationale for the deal. Because let's face it, automakers, they're not technology firms. I think they need to be, and they're going to be, but you've got all this hardware that is now coming into the car, to the new connected vehicle. But the hardware by itself is no good. You have to have software to connect all these pieces together and to tell the hardware, the stuff on the car, you have to have the software to tell it what to do, how to operate. That's really hard, that kind of software engineering is difficult to do for an automaker. I think that's the rationale here, is Qualcomm has some basic chips to control these systems, but they've got to make it easier for automakers to implement.
