Qualcomm warned shareholders its customers are wary of a Broadcom takeover, noting two major clients have already threatened to withdraw their business if a deal is reached.
In a note to investors, Qualcomm revealed two unnamed customers accounting for chipset revenues of more than $1 billion each per year have said they will likely take their accounts elsewhere if a Broadcom deal moves forward. The companies reportedly expressed a “lack of confidence in Broadcom’s ability to continue to lead in technology”.
Qualcomm added a number of its customers share concerns about a potential Broadcom tie-up and pointed out a handful of Chinese vendors, including Xiaomi, Oppo and Vivo, have already publicly voiced their opposition.
The news comes as Qualcomm and Broadcom aim to set a meeting date to see if they can overcome differences and reach an agreement. In a letter to Qualcomm board chairman Paul Jacobs, Broadcom CEO Hock Tan pushed for a meeting this weekend in New York, but Qualcomm stated it is not prepared to meet until Tuesday (13 February).
Tan reiterated Broadcom’s $82 per share bid is its “best and final offer,” but noted the company included an $8 billion reverse termination fee which would be paid to Qualcomm in the event of the transaction’s collapse.
In addition to customer concerns, Qualcomm advised Broadcom’s plan to overhaul its licensing business could threaten or destroy a revenue stream worth at least $4 billion.
Additionally, any deal would face a number of regulatory hurdles, given Qualcomm and Broadcom compete in a number of overlapping areas. Qualcomm argued Broadcom’s plan to proceed with product rather than business divestitures to alleviate regulatory concerns will raise more red flags than it lowers and added the need to pacify overseas regulators could subject its businesses to remedies including price caps and bundling restrictions. The company also warned the Chinese vendors’ opposition stance “creates a serious problem for [regulatory] clearance in China”.
A projected approval process of 18 months or more would “seriously disrupt” Qualcomm’s business during a “critical time” as it pushes ahead with work on 5G, IoT and autonomous driving technology, the company said. Broadcom’s proposed break-up fee falls “far short of compensation for the harm inflicted” if the deal were to fall through, it added.