Mobile chip leader Qualcomm (QCOM +11.19%) just announced that it completed the acquisition of Arriver, the autonomous vehicle software segment of Veoneer. This acquisition is a big deal for Qualcomm, which is best known for its smartphone chips. The addition of the Arriver business segment will deepen Qualcomm's relationships with automakers, and the company now has a $13 billion automotive design-win pipeline.
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Augmenting and accelerating ADAS services
Qualcomm worked with private equity group SSW Partners to arrange the deal, outbidding automotive industry supplier Magna (MGA +1.19%) for Veoneer late in 2021. The deal was closed on April 1. SSW Partners purchased Veoneer for $4.6 billion, and is now selling the Arriver segment of Veoneer back to Qualcomm. The other Veoneer segments will continue to collaborate closely with Qualcomm. Investors can expect the more specific financial details of the Arriver purchase to be discussed at the company's next quarterly earnings update on April 27.
Here's what we do know right now: Arriver was reported as part of Veoneer's "Active Safety" segment. In the automotive industry, "active safety" refers to advanced driver assist systems (ADAS) that help reduce the severity of accidents by managing the steering or speed of a car for the person behind the wheel. In 2021, Veoneer made just shy of 10.1 million active safety system deliveries to automakers. Segment revenue was $869 million, a 39% year-over-year increase. Hardware sales from Veoneer sensors and electronic control units are lumped into that figure as well, so just how much revenue is attributable to Arriver software specifically remains to be seen.
Arriver is a natural fit in the Qualcomm portfolio. Qualcomm CFO Akash Palkhiwala commented that the Arriver's ADAS software unit will be an important part of the company's burgeoning automotive business. Arriver has been utilizing Qualcomm Snapdragon Ride chips for years. These integrated processors control key autonomous vehicle functions. Vision is one primary capability, with Arriver Vision software handling video feed from cameras that orient a vehicle on the road and navigate it to its final destination.
Notably, Qualcomm's platform is scalable across an automaker's entire lineup of vehicles, whereas competitor Nvidia's (NVDA +4.30%) DRIVE Orin chip platform is geared toward premium models only. For the sake of comparison, Nvidia recently said it has an $11 billion sales pipeline for its DRIVE autonomous vehicle platform.
Building momentum in the right places
Qualcomm is undergoing a radical diversification of its business model, taking its smartphone chips and augmenting them for use across all sorts of industries. During the investor day presentation last autumn, Palkhiwala and other executives outlined how this process will take Qualcomm's addressable market from about $100 billion a year to $700 billion.
This is not to say that the company will capture all of that market share, but commercializing chips and related software is going to be a huge opportunity as vehicles -- and other connected industrial equipment -- quickly evolve into a type of "smartphone on wheels." With its scalable platform already in place for the automotive industry, Qualcomm has a big opportunity ahead. The chipmaker already works with all leading auto manufacturers in areas like vehicle mobile network connectivity, so it should have product cross-selling opportunities with its new ADAS capabilities.
One more piece of context: Qualcomm's auto segment hauled in $256 million in sales in the first quarter of fiscal year 2022. The $13 billion sales pipeline extends years into the future, but it nonetheless reinforces the company's previous guidance for automotive sales to reach about $3.5 billion a year in five years' time, and $10 billion annually in the next decade. Put another way, Qualcomm should be a top semiconductor stock to consider if you're after automotive technology, which increasingly covers everything from vehicle electrification to self-driving capabilities.
