Following Broadcom’s surprise unsolicited $130 billion offer for Qualcomm earlier this month – and the subsequent unanimous rejection by Qualcomm’s board of directors – it looks as if the will they, won’t they of a potential merger of two of the giants of the semiconductor world is set to play out while 2017 draws to an end. In this exclusive analysis piece, IAM provides a detailed look at each company’s patent position, as well as a summary of the big issues they have faced over the last five years.

Patent portfolio breakdown

Broadcom and Qualcomm each own a sizeable and imposing patent portfolio: both companies feature in Clarivate Analytics’s Top 100 Global Innovators Report 2016 (as well as in five previous editions each) and in IEEE’s Patent Power 2016. The latter measures the pipeline potential of patent portfolios based on the number of US rights that have been granted in the last full year, weighted against other metrics of growth, impact, originality and generality. Of particular note is Qualcomm’s score of 7,674; that makes it by far the leading force in the communications and internet equipment sector (for comparison, Nokia comes second in this sector at 1,406).

The number of patents and the top five patent classifications for each portfolio can be seen below, with the data being provided IP data and analytics platform, ktMINE. Although, as one might expect, Qualcomm has significantly more granted patents overall than Broadcom – almost twice as many –Broadcom has the edge when it comes to granted US patents alone. There is also a noticeable overlap between the top patent classifications of each portfolios, especially in H04L (transmission of digital information); so in the event of a merger, this is an area where the new company would see considerable strengthening – as such, it may also be a particular focus for competition authorities.

Qualcomm’s portfolio

Broadcom’s portfolio

That the two portfolios would be highly compatible is demonstrated by the analysis below, conducted for IAM by patent services and technology intelligence company TechInsights. A landscape was prepared combining the active US patent portfolios of the two businesses, with a score being given based on both fundamental patents (with older patents being weighted more as they are often more foundational inventions and thus more valuable) and the quantity of patents among the technology peaks that enable their product features. The comparison column shows which company's patents score higher in that particular technology. In the case of close scores, this is represented with the corresponding letter being in the middle of the column.

The result, states TechInsights, shows that: “Broadcom and Qualcomm are well matched, with Qualcomm shining in transport layer and imaging innovations, and Broadcom in the physical layer and video patents. The portfolios complement each other well. As a combined company, their product offerings would provide a full solution for device connectivity.”

Key storylines in the past five years

To provide further context to Broadcom’s proposed takeover of Qualcomm, a timeline of the last five years can be seen below, with the most important stories for each company highlighted.

2012

In early 2012, Broadcom completed its acquisition of NetLogic Microsystems for $3.7 billion which began in 2011; this was followed shortly afterwards by an announcement of its plans to buy BroadLight, an Israel-based developer of processors, for $230 million. Before these, Broadcom had already had a long history of acquisitions of technology companies dating back to 1999.

Meanwhile, Qualcomm announced its plans to implement a new corporate structure in June, which would introduce a new wholly owned subsidiary, Qualcomm Technologies, Inc (QTI). QTI would, along with Qualcomm’s other subsidiaries, help operate the majority of the parent company’s research and development activities, and product and services businesses.

2013

Avago Technologies – which would later come to buy Broadcom and adopt its name – completed its acquisition of CyOptics, a leading optical chip and component supplier for $400 million. A few months later, Broadcom wrapped up its acquisition of LTE-related assets from affiliates of Renesas Electronics corporation for roughly $164 million.

The biggest stories came at the end of the year, however, when Avago entered into a definitive agreement to acquire LSI Corporation, a US-based semiconductors company, for a sizeable $6.6 billion. At about the same time, an antitrust investigation led by the National Development and Reform Commision (NDRC), China’s leading economic planning body, began into Qualcomm.

2014

The year kicked off with Qualcomm substantially bolstering its list of mobile technology patents as it acquired a patent portfolio from Hewlett-Packard Company that was composed of 1,400 grants from and pending applications with the USPTO, and approximately 1,000 grants and pending applications from other issuing agencies. A few months later, in May, Avago completed its acquisition of LSI Corporation, and then in August it rounded off its cash acquisition of PLX Technology for approximately $298 million.

Qualcomm was also busy with its own takeovers, as it agreed in October to buy CSR, a leading fabless provider of end-to-end semiconductor and software solutions for the Internet of Everything and automotive segments, for $2.5.

The next month, two new investigations began into Qualcomm’s alleged anti-competitive behaviour in the US and EU, in addition to the inquiry in China. The NDRC’s investigation would conclude soon after, in December. The investigation resulted in plans for huge fines, on top of a mandate to the company to lower its licensing fees and abandon its ‘reverse licensing’, whereby licensees were required to make a commitment not to sue other Qualcomm licensees for infringement of their IP rights.

2015

In February, Avago announced that it would acquire Emulex Corporation for $609 million – this deal would quickly be concluded a few months later. At the same time, Qualcomm reached an agreement with the NDRC – it would pay a fine of $975 million and make a series of changes to the licensing terms covering its 3G and 4G standard-essential patents (SEPs) in China.

The other crucial story in 2015 was Avago’s purchase of Broadcom in May for a hefty $37 billion. At the time, this was the largest tech deal in history.

2016

Avago – now going by Broadcom Limited – announced in February that it had completed its acquisition of Broadcom Corporation. In the same month, Qualcomm struck a licensing deal with Lenovo in relation to its 3G and 4G patents. This came after it had signed up Huawei, ZTE, TCL and Xiaomi in the previous months and completed the sweep of China’s top five mobile manufacturers. In April, the company signed a licensing agreement with Yulong Computer Telecommunication Scientific, which became the 100th company to accept licensing terms with Qualcomm on the new NDRC terms. In another significant development , Qualcomm filed its first patent suit in China against Guangdong-based Meizu. It would later reach a worldwide licensing agreement with the company in December.

There were two other major acquisitions in 2016: Qualcomm reached an agreement to acquire NXP for $110 per share in cash, representing a total enterprise value of around $47 billion; meanwhile, Broadcom successfully bid $5.9 billion to buy Brocade Communications Systems.

Finally, in December, Qualcomm was hit by a whopping $854 million fine by South Korea’s antitrust regulator, the largest fine ever levied in the country. The company announced that it would challenge this decision in court.

2017

Another significant challenge arose for Qualcomm, when Apple filed suit against it in the US for $1 billion alleging abuse of its monopoly position. Qualcomm retaliated by filing a complaint alleging that Apple violated section 337 of the Tariff Act of 1930 by importing and selling certain devices and components. Intel would later add fuel to the fire by filing a public interest statement with the International Trade Commission (ITC) accusing Qualcomm of abusing its monopoly. On top of all this, Qualcomm has sought to ban the sale and manufacture of iPhones in China. In the last month, Android smartphone makers have also shown a desire to renegotiate royalty terms with Qualcomm by stopping payments.

To make matters worse for Qualcomm, a South Korean court denied its request to rescind the fine it received from the Korea Fair Trade Commission in the previous December. It was then hit by another record fine of $773 million by the Taiwan Fair Trade Commission (TFTC).

In one positive development for Qualcomm, it appears to be set to win Japanese antitrust clearance for its NXP bid. This news came immediately after Broadcom made its $130 billion offer for Qualcomm in early November, in what would be the new largest tech deal ever, and Qualcomm’s subsequent rejection of the bid.

Brand values

While Qualcomm and Broadcom are clearly more focused on their patent portfolios than their trademarks, both companies also possess strong brands that have increased in value over the last year, as seen below. In Brand Finance’s Global 500 2017 report, Qualcomm is ranked as the 221st most valuable brand in the world at $6.8 billion. This is an improvement compared to the previous year where it was ranked 371st at a brand value of $4.1 billion.

Likewise, Broadcom saw a jump in its brand value over the last year, increasing from $2.1 billion to $4.8 billion. Whereas in 2016 it did not feature in the top 500 global brands, it made its debut in the 2017 report as the 349th most valuable brand in the world.

From this, there is evidently greater weight attached to Qualcomm’s brand. It is also worth mentioning that its brand is perceived to be slightly stronger than Broadcom’s brand, too.

Qualcomm's brand value

Broadcom’s brand value

Licensing practices

Licensing is a major driver of growth for Qualcomm. As seen below, royalty payments have been extraordinarily lucrative; so much so, that it has felt pressure to spin off its chip-making business. However, there has been a noticeable dip in the earnings of its licensing business in the most recent two quarters. Broadcom’s licensing income is less visible. However, it is highly likely that it too relies heavily on patent licensing schemes.

Qualcomm Technology Licensing earnings from 1Q16 to 4Q17 (view full-size here):

Leading individuals

Qualcomm key personnel

Steve Mollenkopf

Chief Executive Officer

Donald Rosenberg

Executive Vice President, General Counsel and Corporate Secretary

Alex Rogers

Executive Vice President and President of Qualcomm Technology Licensing

Alvaro Ramos

Head of Global Antitrust

Darla Kasmedo

Director, IP operations

Joseph Lee

Senior Director, Legal Counsel of Qualcomm Technology Licensing

Laurie Self

Vice President and Counsel, Government Affairs

Luke Bonacci

Vice President, Technology Licensing

Manjit Gill

Vice President, IP operations

Philip Wadsworth

Vice President and Legal Counsel, Global IP policy

Roger Martin

Senior Vice President, Chief IP Strategist

Timothy Loomis

Vice President & Legal Counsel, IP policy

Thomas Rouse

Vice President, Patent Counsel

Broadcom key personnel

Hock Tan

President and Chief Executive Officer

Mark Terrano

Vice President and General Manager, Intellectual Property and Licensing

Brad Blanche

Associate General Counsel, Senior Director – Intellectual Property & Standards Group

Jeyhan Karaoguz

Vice President and General Manager, Intellectual Property

Michelle Sayer

Vice President, Deputy General Counsel

Ryan Phillips

Director and Managing IP Counsel