Google Inc. (NASDAQ: GOOG) surprised the technology world with its $12.5 billion all-cash deal to buy Motorola Mobility Holdings Inc. (NYSE:MMI) to defend its Android ecosystem.
Let's take a look how this deal will impact the semiconductor companies, especially Qualcomm Inc. (NASDAQ:QCOM) and Texas Instruments (NYSE:TXN):
"We expect the impact of GOOG's acquisition on Motorola Mobility to be relatively minor if Google does as they said on their call and keeps Motorola as a separate business competing with the existing Android handset and tablet vendors. Since most semiconductor vendors are essentially 'arms merchants' to the Android ecosystem, we see relatively minor implications," Susquehanna Financial analyst Chris Caso wrote in a note to clients.
Implications for Qualcomm
To the extent that Google's purchase helps the growth rate of Android smartphones in total, analysts see that as a positive for Qualcomm's royalty business.
"Since two-thirds of Qualcomm's operating profit comes from 3G handset royalties, we see any move that can potentially improve the growth rate of handsets as a positive to Qualcomm's Technology Licensing (QTL) business," Caso said.
From a chipset perspective, Qualcomm does have more chipset market share with Motorola Mobility competitors Samsung, RIM and HTC than it does with Motorola at the moment.
As a result, the extent that Motorola Mobility gains share against other Android competitors, it would be an incremental negative for Qualcomm's CDMA Technology (QCT) business.
However, analysts still expect Qualcomm's chipset business to gain market share over the next year - including at Motorola - due to the strength of its upcoming 28nm product lineup.
Implications for Texas Instruments
Texas Instruments presently has a significant presence in Motorola Mobility's high-end smartphone lineup with their OMAP applications processor, including the Droid 3, as well as what the analyst believes to be the refreshed Atrix (XT-860) and Bionic phones.
"TXN's OMAP is also widely believed to be the reference design processor for the next generation of Android, named Ice Cream Sandwich," Caso said.
While Caso doesn't think the acquisition is likely to change anything with respect to Texas Instrument's design traction at Motorola, he noted that there have been widely reported rumors that the chip maker may be considering selling their OMAP product line.
"While we have no knowledge about whether or not TXN is considering such a move, we do think that MMI's acquisition makes OMAP more valuable to a potential acquirer, due to TXN's historic close working relationship with MMI as well as the nearer term design wins," the analyst said.
Caso said that such a sale would make sense for Texas Instruments since OMAP is quite different from its core analog businesses. The analyst also said the company would be more successful in getting on handset reference designs alongside vendors such as Qualcomm if Texas Instruments were no longer a competitor, and would therefore be a positive for the stock.
"We think competitors such as Samsung and Broadcom would be interested in OMAP if it were indeed for sale," Caso wrote.