It was a gainful year for NXP Semiconductors NV (NXPI, Financial) in 2016 as the stock surged over 16%. Leading chip manufacturer Qualcomm Inc. (QCOM, Financial) is on its way to acquire NXP by the end of 2017. Qualcomm will purchase NXP for $47 billion in an all-cash deal.
Valued at $110 per share, the acquisition, if successfully carried out, will become the largest deal in the history of the semiconductor industry.
Currently, the internet of things market is what most tech companies are aggressively focusing on. As an industry leader, Qualcomm has done an amazing job of positioning itself to benefit from the growth of this sector. However, acquiring NXP will further increase its success.
NXP is mainly known for manufacturing secure connection chips for smart homes, in-car infotainment systems and mobile payments. In the most recent quarter, the yearly revenue generated from the company’s secure connected devices segment surged 23%. It is highly likely this trend will continue since the IoT market is projected to grow at a rapid pace in the imminent years.
Wearable devices such as smartwatches appear to be an auspicious opportunity in this space. According to marketsandmarkets.com, the wearable technology market is anticipated to reach $51.60 billion by 2022, up from $15.74 billion in 2015. This represents a compound annual growth rate of of 15.51% between 2016 and 2022.
Bearing in mind the positive forecast for wearables, NXP appears to be in a great position to benefit over the coming years as tech companies discover ways to add mobile payment features to these devices.
Apart from this, NXP endures to strengthen its position in the automotive industry. In the third quarter, revenue generated from the automotive segment accounted for 34% of the company’s overall business, representing a surge of 14% from a year ago.
The autonomous cars market is still in its infancy, but NXP will benefit from the continuously rising industry due to chip technology. The increased demand for chips is due to the need for more electronic features like advanced driver assistance systems (ADAS) and infotainment systems. NXP’s robust position in the automotive chip market is the main reason why Qualcomm wants to buy it.
The positive outlook of the autonomous car market will ultimately increase the total addressable market of semiconductor chips used in the auto industry, which reveals a robust top-line growth opportunity.
Summing up
NXP currently holds 14.5% of the market share in the automotive semiconductor sector, which is projected to grow considerably in the years ahead. As a result, the company has even more opportunities for growth in this segment. Moreover, it is highly likely Qualcomm will successfully acquire NXP. All in all, stockholders looking to profit from NXP’s future growth will need to keep an eye on Qualcomm.
Qualcomm currently holds a leading position in the mobile device chip manufacturing segment, and the deal with NXP will further strengthen its position in the worldwide semiconductor industry.
Disclosure: No position in the stocks mentioned in this article.
Start a free 7-day trial of Premium Membership to GuruFocus.
