Merging Apple suppliers create $22 bln chipsqueak
29/10/2025 12:00
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. By Jonathan Guilford NEW YORK, Oct 28 (Reuters Breakingviews) - There's often a big price to pay for being small. Just look at chipmaker Qorvo QRVO.O, formed by fusing RF Micro and TriQuint, after some prodding from investor Starboard Value. The combined company's shares have tumbled 30% over the past five years, tempting the aggressive hedge fund to return, and yet another deal to take shape, this time with rival Skyworks Solutions SWKS.O. Despite the logic, it would take many more mergers to make a meaningful difference in the market. This latest deal may have been on Starboard CEO Jeff Smith’s mind for a while. When his firm published a letter detailing TriQuint’s underperformance back in 2013, it pointed to Skyworks as a notable, and more profitable, comparison. The gap has yet to close, with Qorvo generating a 13% adjusted operating margin in the quarter ending in June, versus 23% for its dance partner. It's one reason that joining forces makes sense. Skyworks is buying Qorvo for cash and stock, forming a $22 billion supplier. At least $500 million of promised cost savings, taxed and capitalized, should be worth some $4 billion. Nearly two-thirds of the sum should accrue to the acquirer's shareholders, or $1.3 billion after subtracting the premium it’s paying. A commensurate rise in Skyworks' market value suggests confidence in securing the synergies. Better yet, the target's estimated operating income, according to estimates compiled by Visible Alpha, imputes a return on investment of almost 10%, more than its cost of capital as ballparked by Morningstar analysts. One big risk remains, however. Apple AAPL.O accounts for more than half their combined revenue. Compared to peers such as $2 trillion Broadcom AVGO.O and $200 billion Qualcomm QCOM.O, even an enlarged Skyworks will have significantly less negotiating power with the iPhone maker. There may be more opportunities to come. Both chipmakers are targeting applications for drones, satellites and data centers feeding artificial intelligence. Bulking up while eliminating spending should help. And the merger builds on profit-boosting overhauls underway at both companies. Add their estimated operating incomes for the next 12 months with the anticipated cost cuts, and the implied margin tallies about 27%. They are targeting 35%, however. If the deal spurs a virtuous circle of better-resourced development, Skyworks stands a chance of becoming more indispensable to Apple and expanding elsewhere. It's just that in a world of goliaths, it's harder for efficiencies to bear impressive fruit. Follow Jonathan Guilford on X and LinkedIn. CONTEXT NEWS Chipmaker Skyworks said on October 28 that it had agreed to merge with peer Qorvo in a cash-and-stock transaction valuing the combined companies, including debt, at $22 billion. Under the terms of the deal, Qorvo investors would receive $32.50 and 0.96 Skyworks shares for each Qorvo share they hold. Based on stock prices immediately prior to the announcement, the transaction would value Qorvo’s equity at about $9.8 billion. According to a securities filing, hedge fund Starboard Value, which owns roughly 8% of Qorvo’s shares, has agreed to vote in favor of the merger. Qatalyst Partners and Goldman Sachs are advising Skyworks while Centerview Partners is advising Qorvo. Qorvo and Skyworks have fallen behind the market https://www.reuters.com/graphics/BRV-BRV/BRV-BRV/akpejgmjjvr/chart.png (Editing by Jeffrey Goldfarb; Production by Maya Nandhini) ((For previous columns by the author, Reuters customers can click on GUILFORD/ Jonathan.Guilford@thomsonreuters.com))