No, Qualcomm Isn’t Becoming An Automotive Tier 1

Early this morning, Qualcomm announced that is was making a $4.6B offer for Veoneer, an automotive ADAS technology company that Qualcomm is already engaged with on its Arriver technology. This offer represented an 18% premium to another offer by Magna, an automotive “Tier 1”. The offer is all cash with no financing, a superior offer than Magna’s.

Qualcomm is currently a player in the automotive electronics business with its telematics, dashboard and ADAS technologies. Overall, Qualcomm has a $10B automotive backlog, and in its most recent quarter, attained an annualized, $1B revenue number. Automotive isn’t new to Qualcomm as it supplies nearly every brand of car on the road in one way, shape or form. It invented modern telematics given its prowess in wireless modem technologies, extended that to the dashboard, displacing many NVIDIA designs, then moved on to ADAS and full self-driving. This is a strategic fit for Qualcomm. Also, check out my coverage from CES 2021 here where I discuss Veoneer.

What some aren’t understanding about the deal is that Qualcomm is acquiring Veoneer for the Arriver technology, and that is it. It does not want to become an automotive Tier 1. In its letter to Venoeer, Qualcomm was clear: “.. we plan to explore a divestment of the non-Arriver assets to parties who are better positioned to grow these strong and stable businesses..” In other words, we (Qualcomm) want Arriver and would sell the remainder of the assets likely to a Tier 1 because Qualcomm does not want to become a Tier 1.

I believe Qualcomm wants an open field to sell to Tier 1s like Magna, Continental, Bosch, and Denso in addition to those automakers who prefer to develop more of the solutions in-house, directly with a chipmaker. That is a much bigger market and more in Qualcomm’s sweet spot than becoming an automotive Tier 1.