SAN DIEGO _ For well over a decade, Qualcomm has been the research and development engine driving advances in cellular wireless. By making big bets on technologies years ahead of time, it created inventions that enable streaming video, street-by-street directions, photo sharing, longer battery life and other features found on nearly every smartphone on the planet.
If Broadcom succeeds with its $103 billion takeover bid to acquire Qualcomm, would it continue the practice of pursuing long-term research on the next big innovation that pushes the mobile technologies forward?
An increasing number of analysts don't think so. It is not the way Broadcom CEO Hock Tan has run his companies over the years.
"He optimizes everything around efficiencies," said Jim McGregor, principal analyst with Tirias Research. "He is an investor. The philosophy he is taking is: We don't invest in research and development. We buy it."
Broadcom's effort to acquire Qualcomm _ which could be headed for a hostile proxy fight for control of Qualcomm's board of directors _ would attempt to meld it to very different business models and cultures around innovation, analysts say.
"You have the risk takers, and then you have the ones that let the market play out and then go in," McGregor said. "It's a more conservative approach. I'm not saying it's bad. It just doesn't help with innovation. It doesn't drive the market."
Making an acquisition work without destroying what makes Qualcomm valuable could be difficult.
"Qualcomm invests in stuff that doesn't have to be profitable for a while," said Olivier Blanchard, senior analyst at Futurum, a technology strategy and research firm. "They're not going quarter by quarter. They have a bigger strategy.
"Whereas Broadcom is super good at cutting costs and being a financially driven company. That is great for investors quarter to quarter but doesn't necessarily have the focus to want to build things for the long term."
Although the companies may not be a perfect cultural or business model match, they certainly make a compelling pair financially.
After cost cutting and assuming completion of Qualcomm's $38 billion pending acquisition of Dutch chipmaker NXP Semiconductors, the combined companies would be a juggernaut with $51 billion in revenue and a $22 billion annual operating profit _ trailing only Intel and Samsung in the semiconductor industry.
The conglomerate would own a leading market position in nearly every high-value chip inside smartphones.
Qualcomm's shares were trading at low prices because of a legal battle with Apple and global antitrust regulators over patent fees. Qualcomm executives have preached patience, noting that it has favorably resolved patent licensing battles with Nokia and others before.
With its stock price down 18 percent over the past year, patience from hedge funds, mutual funds and other institutional investors that make up 78 percent of Qualcomm's investor base may be wearing thin.
Broadcom's takeover offer is far from a done deal, however. There is considerable risk that global regulators would block the sale. Qualcomm rejected Broadcom's offer as significantly undervaluing the company.
But Broadcom's bid is serious. It could pursue a proxy battle to win board seats to push the deal through. It also could offer to pay more, RBC Capital Markets analyst Amit Daryanani said in a research note.
Such a move would force Qualcomm's shareholders to decide "can Qualcomm's management, which has overseen severe underperformance and been unable to resolve key disputes, turn the ship; or should shareholders put faith in Hock Tan and take the exit?" Daryanani wrote. "We think status quo isn't a feasible option anymore, especially if Broadcom were to raise the offer" heading into a proxy battle.
Tan has been very successful at expanding beyond his core company, Avago Technologies, through acquisitions. His largest was Broadcom, which Avago bought for $37 billion in 2016 and took the Broadcom name. The company is strong in Wi-Fi/Bluetooth, broadband infrastructure and data center networking chips. Tan has been a master at absorbing the companies he acquires _ delivering strong financial performance. Broadcom's stock is up nearly 61 percent over the past 12 months.
Tan contends that Broadcom is a technology company that invests in research and development. He views the firm as a portfolio of market-leading product lines, which he calls sustainable franchises.
"We identify the strong businesses in the companies we acquire, and in the case of Qualcomm, undoubtedly it's their roots," Tan said. "Their roots trace back to cellular wireless. That is what attracts and excites me about the company. It is the leader _ engineering, technology and market leader _ in cellular wireless. We see that as a very sustainable franchise."
When Avago bought Broadcom, it began to sell product lines it didn't see as sustainable franchises. They included its Internet of Things business and wireless infrastructure backhaul division, among others.
"Let's say Broadcom acquired Qualcomm tomorrow _ putting aside regulatory hurdles and all that," said Blanchard of Futurum. "I think Broadcom would have a tendency to get rid of all the business units and projects that aren't going to be very quickly profitable."
Qualcomm, on the other hand, invests in technologies that are years from producing a return on investment. It has been working on 5G, which aims to deliver fiber-optic-like speeds to mobile devices, for a decade, even though 5G technology isn't expected to start generating a return on investment until 2019.
"While startups are good innovators, you still need companies that have the staying power, the investment capabilities and everything else to build a market, build an ecosystem," said McGregor of Tirias Research. "That is why you need companies that are risk takers and have that investment capability like a Google, an Intel, a Qualcomm, etc."
Although Broadcom has amassed an impressive technology portfolio, its lack of cellular chips is a big hole in its product lineup, said Geoff Blaber of industry research firm CCS Insight.
"It is clear Broadcom needs Qualcomm far more than Qualcomm would benefit from the tie-up," Blaber said. "The gap in Broadcom's portfolio will become a mounting problem" as more far-flung gadgets are equipped with high-speed cellular connectivity and computing power.
Qualcomm sees future growth potential with the upcoming rollout of ultra-fast 5G networks _ in which it is believed to have a technology lead _ and the expansion of cellular technologies into cars, health care devices, the internet of things gadgets and other industries.
The company has been expanding smartphone products to include radio frequency chips used near antennas. Moreover, the purchase of NXP, which makes automotive and security chips, would help ease Qualcomm's reliance on the slowing smartphone market. During its 2017 fiscal year that ended in September, the company took in $3 billion of its $22.3 billion in revenue from non-smartphone customers. That is a 25 percent increase from the previous year.
In addition, its chipmaking unit _ which pulls in most of the company's revenue _ has boosted profit margins for six straight quarters. Its patent licensing business, which accounts for most of its profit, struggled as Apple and another smartphone maker stopped paying royalties for using Qualcomm's patented cellular technologies.
"It's not like Qualcomm is bad at making money," Blanchard said. "They understood how to monetize 3G. They understood how to build and monetize 4G. Now they are doing it with 5G and already working on technology beyond that. They are a long-bet company."
