ATHR Atheros Communications, Inc. (MM)

The leading manufacturer of mobile phone chipsets in the world, Qualcomm Inc. (QCOM) recently announced that it has completed the pending acquisition of Atheros Communications Inc. (ATHR) for $3.1 billion. The newly acquired company will be a subsidiary of Qualcomm and will be known as Qualcomm Atheros Inc. This acquisition is one of the largest in the history of Qualcomm.

According to Qualcomm, the recent purchase will have negative impact of 9 cents to 13 cents on their EPS guidance for fiscal 2011. The negative impact is primarily attributable to some accounting charges related to the recent acquisition coupled with the ongoing share-based compensation plan.

Earlier this year, Qualcomm entered into an agreement to acquire the leading Wi-Fi chip maker Atheros for roughly $3.3 billion or $45 per share in cash.

Atheros provides innovative technology services to both wireless and wired communications. So, this deal will benefit Qualcomm in many ways. Firstly, it will enable Qualcomm to diversify its consumer electronics segment, particularly the home networking market as Atheros manufactures Wi-Fi chips for televisions, video games, printers, and other home devices. Secondly, Qualcomm will gain some potential clients such as Dell Inc.(DELL), Hewlett-Packard Co. (HPQ), and Microsoft Corp. (MSFT) to whom Atheros provides its service. Hence, the deal will further strengthen Qualcomm’s position globally and will allow the company to provide better services to its clients.

Recently, the company reported impressive second quarter 2011 results where both the top line and bottom line exceeded the Zacks Consensus Estimate by a strong margin.

We maintain our long-term Neutral recommendation on Qualcomm. Currently, Qualcomm has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

 
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