Many big chipmaker buyouts have occurred over the past year, but the wave of market consolidation probably won't end anytime soon, since major chipmakers still must expand their portfolios or bolster their manufacturing capabilities to stay competitive. Let's discuss two such buyouts which could happen in the near future.

Image source: Pixabay.

Qualcomm buys Ambarella
Last year, analysts at Pacific Crest and FBN Securities suggested that Qualcomm (QCOM 1.25%), the biggest mobile chipmaker in the world, should acquire image application processor maker Ambarella (AMBA -3.69%). Doing so would complement Qualcomm's expansion into chips for Internet of Things (IoT) devices, connected cameras, action cameras, and drones. The chipmaker already bought CSR for $2.4 billion last year to expand into those markets.

That expansion might offset Qualcomm's ongoing declines at its chipmaking (QCT) division, where sales fell 25% and operating profit plunged 77% annually last quarter due to sluggish demand for mobile devices and competition from cheaper rivals like MediaTek. On the other hand, Ambarella's revenue rose 45% annually to $316 million last year, but that's equivalent to less than 2% of Qualcomm's QCT revenues in 2015. Ambarella's sales are also expected to decline 1% this fiscal year (which ends next January) due to slowing demand for action cameras.

Ambarella stock plunged nearly 40% over the past 12 months due to those concerns, reducing its enterprise value to $1.15 billion. That might look like an easy purchase for Qualcomm, which finished last quarter with $30 billion in cash, cash equivalents, and marketable securities. But Qualcomm is already leveraging its mobile expertise to sell its own 4G-connected SoCs -- a move which won over several minor action camera makers last year. Qualcomm has also been talking to two of Ambarella's biggest customers -- GoPro and drone leader DJI Innovations -- which might indicate that Qualcomm plans to crush Ambarella instead of buying it.

The Qualcomm-powered 4GEE Action Camera. Image source: 4GEE.

Intel buys MediaTek
Another company which Qualcomm previously crushed was Intel (INTC 2.52%), which lost the mobile chip market by divesting its ARM (ARMH) chipmaking unit just as smartphones were taking off and believing that its x86 chips could effectively compete against ARM-based ones. Intel tried to catch up by throwing billions of dollars in "contra revenues" at OEMs with steep discounts on Atom chips, co-marketing deals, and financial assistance in redesigning logic boards. It also poached two high-profile Qualcomm execs to lead the charge.

Unfortunately, all those efforts helped Intel capture just 1% of the global smartphone application processor market last year. Intel has been trying to improve profitability at the unit, which lost around $3 billion last year, by making its chips cheaper to produce and phasing out contra revenues. That effort doesn't seem to be working -- its top OEM Asus launched a MediaTek-powered ZenFone last year, and could reportedly use Qualcomm SoCs in newer devices. 

Intel-powered phones. Image source: Intel.

Therefore, it might be time for Intel to buy MediaTek, the second biggest ARM chipmaker in the world. It's not a fresh idea -- analysts at CLSA and RBC Capital Markets previously suggested that the acquisition would be a sensible way for Intel to manufacture ARM chips again. MediaTek currently has an enterprise value of just $7.5 billion, and it generated $6.9 billion in sales last year. Intel finished last quarter with just $3.06 billion in cash and equivalents, so it would need to take on some debt or use stock to seal the deal, but it would be a smart way to stop the bleeding at its mobile business.

Which buyout is more likely?
Qualcomm and Intel both desperately need to diversify. Qualcomm's chipmaking revenues will keep falling as it loses market share to companies like MediaTek and sales of mobile devices slow down. Intel's Client Computing (PC and Mobile) sales will keep falling as consumers buy fewer PCs and its costly smartphone strategy implodes.

But looking ahead, I think Qualcomm's acquisition of CSR already gives it a firm foundation to develop new IoT and connected camera SoCs. Ambarella's assets would enhance those businesses, but it seems like Qualcomm might simply marginalize the smaller chipmaker instead of acquiring it.

Intel's mobile business is in deeper trouble, and it clearly needs to make a drastic move like buying MediaTek. Therefore, I believe that it's far more likely for Intel to buy MediaTek to become the second largest mobile chipmaker in the world. But that move will require Intel to swallow its pride and pay ARM royalties for its mobile designs -- something that the chipmaker is likely unprepared to do.