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Qualcomm’s Supply Chain Dilemma

Now that the news about the mega-Qualcomm-NXP deal has been fairly well digested, the hard work of integrating business practices will soon be underway.

Qualcomm’s proposed $47 billion acquisition of NXP puts together companies not only with different product and market segment expertise, but with significantly different design and supply chain strategies. Absorbing these differences may take years, as Boloji Ojo pointed out in his recent EBN article. Indeed, it could turn out to be one of Qualcomm’s biggest challenges post-acquisition, according to market research firm TrendForce.

The firm noted in a recent press release, “The incorporation of NXP will significantly raise the difficulty of managing supply chains.”

How so? Well, for starters, each of the companies’ main products are notably different, and the way Qualcomm and NXP go about designing and building them are on opposite poles, TrendForce points out.

Qualcomm operates as a fabless chip design enterprise. Its strength is rooted in designing chips for branded phone makers that need high-volume quantities for short lifecycle end products and that wow users with speedy and flashy technology. The chip design cycle refreshes every couple of years, following the smartphone market’s up-the-ante game. Also, Qualcomm relies on foundries to make their chips, washing their hands of the messy work and expense of maintaining fabs across various geographies.

NXP’s model comes from another school of practice. NXP is an established integrated device manufacturer (IDM) building its own chips across a network of global facilities. NXP develops automotive and security chips, which are known to have much longer product life cycles.

“Qualcomm’s first task following the acquisition of NXP will be to revamp its supply strategy to compensate for the differences between its main products and NXP’s,” TrendForce wrote.

Additionally, Qualcomm will have to manage through a likely overlap in some NXP product lines and market segments, such as in the audio processor and Bluetooth space and with Qualcomm’s own branded solutions for automotive and embedded computing, according to the firm. The discussion of which products and technology will stay and what may fall out has already started, and EE Times’ Junko Yoshida wrote about some of it here.

Clearly, supply chain partners will have brace themselves for some the changes that undoubtedly lie ahead. “In the future, Qualcomm will have to reorganize its product lines so that it can take on NXP’s customers while retaining its client base,” TrendForce noted.

But, there could also be design and supply chain opportunities on the horizon that go beyond the well-talked about market-expansion advantages the deal could create.

Qualcomm’s NXP acquisition is likely to help break down barriers of entry into the promising automotive, industrial and infrastructure segments; new entrants would have to spend a lot of time and resources to become part of the supply chains for these industries, TrendForce said. Rolling NXP into Qualcomm’s fold will widen the company’s ties with major clients in these application markets in a shorter time frame.

OEMs, too, may eventually see benefits in the form of more complete solutions. For instance, Qualcomm could leverage NXP’s leadership position in secure mobile payment applications by integrating its processors into NXP’s security solutions.

A similar story could play in the electric vehicle space, where the companies would each bring necessary pieces of the puzzle to the table. TrendForce said, “Qualcomm has invested heavily in wireless charging for xEV, while NXP has worked on power management and other related technologies for a long time. Together they can develop more holistic, system-level solutions. The deal will thus give Qualcomm additional resources to accelerate its advances in the automotive market.”

Time will tell how this will all shake out. What aspects of the deal are you keeping tabs on?

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