TI+InterDigital = 3G Consolidation?
By Vijay Nagarajan, Guest Author
In the previous article, I discussed what an acquisition of InterDigital can do to TI. What then will happen to the cellular industry and the 3G value chain?
If TI acquires InterDigital, I think there will be further market consolidation in the 3G space. Firstly, Nokia and Motorola will be happy that they can compete with ‘Qualcomm inside’ phones from Samsung and LG. Until Nokia and Qualcomm cool off on all their IP issues, it is unlikely that the Finnish company will get chips from Qualcomm. So, the entire Nokia business, which until now was TI’s monopoly, is now wide open. An InterDigital acquisition is one way for TI to retain this market. Also, Samsung and LG may also get a viable alternative to pursue a multiple vendor strategy.
If TI acquires InterDigital, its main competitors will feel added pressure moving forward. Qualcomm, the undisputed performance leader so far, is now being challenged by InterDigital, Infineon and Icera. The Qualcomm advantage still comes from its unsurpassed support network and the scale of operation. But TI can complement InterDigital to match Qualcomm on these two fronts as well, thereby erasing its competitive advantage.
If TI acquires InterDigital, Broadcom will take a bigger blow as its wireless strategy seemingly rests on capturing TI’s market share both in baseband and in the application processor market. Infineon, which currently has a strong alliance with InterDigital, and which I suspect has key elements of the latter’s 3G advanced receiver IP, will run the risk of being marginalized in 3G. Similar arguments can be made for Marvell, Freescale and ST Microelectronics among other chipset vendors.
If TI acquires InterDigital, it can potentially generate up to $10 billion of additional revenue over the next five years. The handset vendors like Nokia will be happy to see crucial 3G patents in the hands of ‘one of them.’ This will be an important factor securing TI design wins into the future. Assuming that a deal is closed at my $75 valuation of InterDigital, the sale price will be around $3.5bn. Under this condition, I will value TI between $36-$37.
Clearly, the two companies have distinct cultures and business model. But if these issues are dealt well, the combination can be explosive. What amazes me about InterDigital is the immense value it offers to companies with completely different business model. If it considers being acquired, it will be hot property. While I am not predicting an acquisition here, I think this is an option that TI should think about. Perhaps it is thinking about InterDigital, or even Icera, or has an accelerated in-house 3G/HSDPA program. Or it is just waiting out for the 4G promise, dodging the 3G curveballs thrown at it in the interim.
IDCC closed on 5/2 at $21.12 with a market cap of $980M. Why would anyone pay $75/sh for a total of $3.5B? Do you consult for IDCC? I would think a price of $30-35 would get a deal done.
Greg,
I don’t consult for IDCC. If you have been following my valuation series on IDCC, you will see detailed reasons for $75. I highly doubt if the IDCC management will agree to anything in the 30’s though I see your point that it is trading at a much lower price today.
I will suggest you read my continued coverage in this site and on my blog to obtain more clarity.
-Vijay