Qualcomm stacks the chips
The telecom's already strong position in 3G and 4G technology gets a wireless boost from the acquisition of rival Atheros.
By Scott Moritz, TheStreet
Typically, expensive deals like the $45-a-share cash offer from Qualcomm for Atheros would send the buyer's shares down on dilution worries. But this deal is getting only positive blowback, largely because it will give Qualcomm's already strong position in 3G and 4G technology a boost in areas like WiFi and GPS technology.
The move comes as Qualcomm announced Wednesday that its Snapdragon processors and LTE chips will be inside new 4G devices at Verizon (VZ). Verizon is expected to introduce some of those mobile devices Thursday at CES in Las Vegas.
Not only is the Atheros buy seen as a good fit strategically, but the financial contribution to Qualcomm from Atheros is expected to be large and immediate.
In a note Wednesday, Morgan Stanley's Ehud Gelblum estimated that Atheros could add $935 million in revenue this year and $1 billion next year. From a profit perspective, Gelblum estimates it would add a nickel a share to the 2011 bottom line and 7 cents a share next year.
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Atheros shares jumped nearly 19% Tuesday after The New York Times' DealBook broke the news. Meanwhile, Qualcomm shares were up 2.1% to $52.04 in midday trading Wednesday.
Two chip shops that don't stand to gain anything except stiffer competition from the deal are Broadcom (BRCM) and Texas Instruments (TXN). Both saw shares drop about 1.2% and 1% early Wednesday, but they bounced back to trade slightly higher by midday.
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