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Qualcomm (NSDQ:QCOM) and NXP Semiconductor (NSDQ:NXPI) announced a definitive agreement, unanimously approved by the boards of both companies, under which Qualcomm will acquire NXP. Qualcomm, headquartered in San Diego, California, is a multinational semiconductor and telecommunications equipment company that designs and markets wireless telecommunications products and services. With a reported revenue of $25.3 billion in 2015 and total assets worth $50.8 billion, it employs 30,000 people. And this acquisition could change the game. Here's why.

A Little Backdrop

"With innovation and invention at our core, Qualcomm has played a critical role in driving the evolution of the mobile industry," said Qualcomm CEO Steve Mollenkopf. "The NXP acquisition accelerates our strategy to extend our leading mobile technology into robust new opportunities, where we will be well positioned to lead by delivering integrated semiconductor solutions at scale. By joining Qualcomm’s leading SoC capabilities and technology roadmap with NXP’s leading industry sales channels and positions in automotive, security and IoT, we will be even better positioned to empower customers and consumers to realize all the benefits of the intelligently connected world."

NXP, headquartered in Eindhoven, the Netherlands, is currently the fifth-largest non-memory semiconductor supplier globally, and the leading semiconductor supplier for the secure identification, automotive and digital networking industries. The company, with a reported revenue of $6.1 billion in 2015, employs 45,000 workers in more than 35 countries, including 11,200 engineers in 23 countries.

“The combination of Qualcomm and NXP will bring together all technologies required to realize our vision of secure connections for the smarter world, combining advanced computing and ubiquitous connectivity with security and high-performance mixed-signal solutions including microcontrollers," said NXP CEO Rick Clemmer. "Jointly we will be able to provide complete solutions which will allow us to further enhance our leadership positions and expand the already strong partnerships with our broad customer base, especially in automotive, consumer and industrial IoT and device-level security. United in a common strategy, the complementary nature of our technologies and the scale of our portfolios will give us the ability to drive an accelerated level of innovation and value for the whole ecosystem. Such a strong fit will bring opportunities for our employees and customers, as well as provide immediate attractive value for our shareholders, in creating the semiconductor industry powerhouse."

Why It Matters

According to the joint press release, the combined company is expected to have annual revenues of more than $30 billion, serviceable addressable markets of $138 billion in 2020 and leadership positions across mobile, automotive, IoT, security, RF and networking. The companies claim to have demonstrated substantial expertise in delivering industry-leading solutions as well as a strong commitment to technology leadership and best-in-class product portfolios with focused investments in R&D. The companies also claim to have taken action to position themselves for profitable growth, while maintaining financial and operational discipline.

A subsidiary of Qualcomm will acquire all of the issued and outstanding common shares of NXP. The Wall Street Journal notes that Qualcomm will pay $39 billion. The deal values NXP at $110 a share, which represents a 34 percent increase over where NXP shares traded before the WSJ reported on the talks on September 29. Including debt, the deal is worth $47 billion.

"Much like Intel with desktop PCs and laptops over the past couple of decades, Qualcomm wants to be unavoidable and essential: the one chip provides that every manufacturer has to work with in some shape or fashion," notes The Verge. "Acquiring NXP may just be the ticket for that destination."

The WSJ focuses on one aspect of Qualcomm's strategy: the company is betting on on cars becoming "the next smartphone." The connected car sector is, in fact, expected to significantly grow over the next few years. Qualcomm, which already supplies the chips that bring cellular connections to cars, will now be able to rely on NXP’s chips and its sales connections with car makers.

It's worth noting that the connected car industry can only continue to grow in the long term, in view of the powerful ongoing trends toward the Internet of Things (IoT) and self-driving cars equipped with all sorts of futuristic features and smart services in both, the car and the cloud.

While NXP's stock has gone up after the announcement of the deal, Qualcomm's stock has gone down, which indicates that most investors - as usual - are wary of bold and expensive moves. But there is every reason to think that the move will prove beneficial for Qualcomm stock in the long run. Evaluating tech stocks? Amigobulls' top stock picks from the technology sector have outperformed the NASDAQ by over 111%.