NEW YORK (TheStreet) -- Chipmaker Qualcomm (QCOM) is at an important crossroads. Along with other technology behemoths, its trying to stay ahead of the competition and remain relevant in a quickly changing landscape.
Recently there have been some key mergers in the semiconductor industry. PC-centric chipmaker Intel (INTC) bid to acquire Altera (ALTR) in a $16.7 billion deal. Avago Technologies (AVGO) has proposed a $37 billion takeover of Broadcom (BRCM).
Companies are flush with cash and in need of technology, cost-cutting synergies and scale in order to remain competitive. As a result, more consolidation and merger and acquisition activity appear to be looming.
Many have speculated that Qualcomm, the largest mobile chipmaker and second-largest U.S. chipmaker overall behind Intel, may also get on the acquisition train in order to supplement the slowing growth of its core smartphone chip business. One option discussed is merging with another leading wafer manufacturer or buying a company on the communications infrastructure side.
In the chip business these days the mantra is, "eat or be eaten." Earlier this year, Qualcomm was dealt a huge blow when Samsung (SSNLF) chose not to use its chips in the new Galaxy smartphones, a loss it attributed to timing issues. And Qualcomm's LTE China business, which was touted as the company's source of future growth, has been disappointing and accompanied by legal and regulatory setbacks.
Activist hedge fund Jana Partners owns almost $2 billion of Qualcomm stock. It suggests that Qualcomm could create shareholder value by separating its chip business from its patent-licensing business and buying back more shares. Qualcomm derives 70% of its revenues from chipset sales, with about two-thirds of the firm's earnings coming from licensing.
But Qualcomm management is not on board with splitting the company into two parts, arguing there are "significant synergies" between the two. The company is also not embracing Jana Partner's recommendations to cut research and development spending.
In part as a response to this activist pressure, Qualcomm announced a plan in March to buy back $15 billion worth of stock. But in light of the recent takeover activity in the industry, it might also make sense for Qualcomm to acquire another chipmaker.
One such rumored target is Skyworks Solutions (SWKS), which makes high-performance analog chipsets for the smart devices connecting the "Internet of Everything." Like Avago, Skyworks is a key supplier to Apple (AAPL) with chips in Apple's new iPhones and iPads. An acquisition of a company such as Skyworks could help Qualcomm boost its presence in the increasingly important Apple supply chain.