QCOM QUALCOMM Inc

By Don Clark 

Steve Mollenkopf started his career as a chip engineer. But his latest exploit might land him in the annals of financial engineering.

Qualcomm Inc.'s chief executive is driving the semiconductor industry's largest-ever acquisition, a $39 billion all-cash deal for NXP Semiconductors NV that will transform Mr. Mollenkopf's business, more than double the number of employees under his direction and take Qualcomm into manufacturing for the first time.

Mr. Mollenkopf acknowledged the challenges ahead in his customary soft-spoken, confident style, the same tone he maintained in recent years as Qualcomm weathered a major antitrust investigation in China and high-profile pressure from an activist investor.

"We've been through a lot," Mr. Mollenkopf said in an interview.

But he said he "feels good" about his ability to oversee the massive job of integrating NXP, a Netherlands-based company that inherited sprawling semiconductor operations that began more than 60 years ago as operations of Philips NV and Motorola Inc.

"This feels like the type of ambition that is Qualcomm," Mr. Mollenkopf said.

The deal, he said, should help Qualcomm more quickly move into automotive chips and other products that are quickly adding communications and processing power to cars. That push is increasingly important as Qualcomm's core business in chips for smartphones comes under pressure from slowing sales in that market.

Mr. Mollenkopf, 47 years old, was promoted to CEO from chief operating officer in 2014 after nearly 20 years at the company, taking over from Chairman Paul Jacobs, the son of founder and former CEO Irwin Jacobs -- the first person outside the Jacobs family to lead the company. The company called the transition a long-planned decision, but also indicated it may have been accelerated by overtures from other potential employers.

An electrical engineer by training -- he studied at Virginia Polytechnic Institute before earning a master's degree in the field from the University of Michigan -- Mr. Mollenkopf has a distinctly low-key personal style, even compared with the staid habits of his predecessor. He said he currently drives an SUV, make and model unspecified.

"I used to drive a Tesla," he said. "I'm waiting to get the next one."

Mr. Mollenkopf spearheaded what had previously been Qualcomm's biggest acquisition, a $3.1 billion deal in 2011 for Atheros Communications Inc. that added a substantial business in Wi-Fi chips.

That tie-up pales in comparison with the $39 billion deal to acquire NXP, which has roughly 44,000 employees compared with Qualcomm's roughly 30,000 by Mr. Mollenkopf's estimate. The Dutch company, which last year completed the acquisition of Freescale Semiconductor Inc., sells thousands of products to more than 25,000 customers. Qualcomm, by contrast, sells a much narrower line of chips to scores of handset makers and other customers.

NXP also has seven factories that turn silicon wafers into chips, manufacturing about half the products the company sells. Industry executives say chip fabrication will require entirely new skills of Qualcomm, which relies on external manufacturing services to produce chips it designs.

Not only was Qualcomm a pioneer in the so-called fabless semiconductor business model; Mr. Mollenkopf himself was the chairman for two years of the Global Semiconductor Alliance, an industry group originally founded to represent the interest of chip companies without factories.

But Mr. Mollenkopf and some analysts say people tend to overlook the expertise Qualcomm has built up over the years through overseeing its manufacturing partners. He noted that the company has been learning more about manufacturing issues through a joint venture announced in January with Japan's TDK Corp. to make and sell some kinds of wireless components.

Qualcomm will lean heavily on NXP's existing managers to oversee day-to-day manufacturing operations, Mr. Mollenkopf said, noting they successfully integrated Freescale's factories with their own. "They learned a lot along the way," he said.

While Qualcomm is best-known for designing chips -- long used in smartphones from the likes of Apple Inc. and Samsung Semiconductor Co. -- the company gets more than half of its profit from licensing wireless patents to handset makers. Such competitors and other companies have at times complained to regulators about Qualcomm's market muscle, leading to a string of antitrust investigations.

In February 2015, Qualcomm agreed to pay a $975 million fine to Chinese authorities as part of an antitrust settlement, which also included several changes to Qualcomm's practices in licensing patents for mobile phones sold in China.

That business model came under more scrutiny the same year when activist investor Jana Partners purchased a stake worth more than $2 billion in Qualcomm and pressed for changes aimed at boosting the company's share price. Qualcomm considered the possibility of breaking its chip business apart from its patent-licensing business, but wound up opting for other restructuring moves that included $1.4 billion in expense cuts.

Mr. Mollenkopf argued that the investments Qualcomm makes in inventing and patenting technology provide an advance look at what features will be needed in chips as markets such as smartphones evolve. The company, for example, has been deeply involved in influencing the evolution of the next generation of cellular technology, known as 5G.

Write to Don Clark at don.clark@wsj.com

(END) Dow Jones Newswires

October 27, 2016 16:14 ET (20:14 GMT)

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