Qualcomm Offers $3.1 Billion for Communications Chip Maker Atheros

Mobile technology vendor bids $45 a share in smartphone and tablet play.

January 5, 2011

D.H. Kass

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Qualcomm Inc. said said that it will pay some $3.1 billion, or $45 a share, to purchase the outstanding shares of Atheros Communications Inc., a San Jose, CA-based maker of chips for wireless and wired communication devices, including Wi-Fi and Bluetooth.

The boards of directors of both companies have approved the transaction, which is expected to finalize within the next six months, pending shareholder and regulatory approval.

In intraday trading on Tuesday, Atheros shares hovered slightly below Qualcomm’s bid at $44.56 with 68.5 million shares changing hands. On Monday, the vendor's stock jumped 20 percent when word surfaced of Qualcomm’s impending proposal.

Qualcomm officials suggested that the Atheros acquisition will enable it to move more forcefully into the burgeoning market for smartphones and tablets. While Qualcomm historically has preferred to develop technology in-house for its core mobile market, the Atheros acquisition affords it the technology to expand its reach to include the explosive smartphone and tablet segments.

“It is Qualcomm’s strategy to continually integrate additional technologies into mobile devices to make them the primary way that people communicate, compute and access content,” said Dr. Paul Jacobs, Qualcomm chairman and chief executive. “This acquisition is a natural extension of that strategy into other types of devices.”

“We see this strategy as central to helping our customers capitalize on the ubiquitous connectivity and seamless experiences that are developing across mobile phones, computing and consumer electronics,” said Steve Mollenkopf, Qualcomm executive vice president and group president.

Dr. Craig H. Barratt, Atheros president and chief executive, is slated to head up the combined, new entity, which will be called Qualcomm Networking & Connectivity Inc.

“Qualcomm and Atheros have a long history of collaboration and share a culture of technical innovation and execution excellence,” Barratt said. “The Atheros team will build upon Qualcomm’s strengths and leadership to bolster our customers’ ability to deliver innovative and differentiated products in the increasingly connected world,” he said.

According to Qualcomm’s 2009 annual report, about 43 percent of the vendor’s revenue comes from networking-related sales, 37 percent from PC-related sales and 20 percent from the consumer market.

The company, which has about 1,700 employees, sells through OEMs and a direct sales force. Qualcomm’s Jacobs indicated that gaining access to the Atheros sales team made the deal more attractive.

Atheros recorded $247.1 million in sales, a 58 percent jump from the same period last year, and net income of $28.1 million, a 27 percent dip from 2009, in its fiscal third quarter ended September 30, 2010, according to its Securities and Exchange Commission (SEC) filings.

Through the first nine months of 2010, Atheros generated $700 million in revenue for a 96 percent jump over the same time frame last year, and a 151 percent spike in earnings to $77.6 million for the period.

In 2009, sales to Asian-based companies accounted for nearly 90 percent of Atheros’ revenue, according to the company’s annual report.

Qualcomm said that it expects the acquisition will add slightly to per share earnings in fiscal year 2012, or the first full year of combined operations.

TAGS: mobile,smartphone,tablet,Qualcomm,Atheros

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