Introduction

Founded in 2017, UK start-up Alphawave Semi is a leader in high-speed connectivity and compute silicon for data centers, AI, networking, 5G, autonomous vehicles, and storage. Last week, Qualcomm signed a definitive agreement to acquire Alphawave for $2.4 billion subject to certain conditions and regulatory approvals.

Alphawave’s Core Strengths
Alphawave’s core strength is in high-speed connectivity IP for data centers and other applications. This includes PCIe Gen 6/CXL 3.0 for servers and storage; 400G, 800G and 1.6T Ethernet IP for network switches, routers, DPUs and NICs; HBM and DRAM memory IP for GPUs, CPUs, FPGAs and DPUs plus chiplet interconnect IP such as UCIe, BOW and Open-HBI for chiplet designs. In particular, the company has a strong heritage in high-speed SerDes on leading-edge process nodes. By leveraging its expertise in SerDes, the company has successfully expanded into custom silicon and chiplet design and manufacturing. In fact, it is now a full-spectrum semiconductor innovator with deep expertise in front-end design, packaging and manufacturing.

In addition, Alphawave is a vertically integrated company which allows it to control key elements of its supply chain, including silicon IP, chiplets, custom silicon and connectivity products and its technology solutions are implemented through a strong ecosystem of foundry and component industry partners, including all the major foundries including TSMC, Samsung, Intel and Global Foundries.

Alphawave also has a close collaboration with ARM to develop advanced compute, I/O and memory chiplets based on ARM’s Neoverse Compute Subsystems (CSS) suitable for AI/ML applications, high-performance compute (HPC), data centre and 5G/6G networking infrastructure applications. Alphawave Semi is also a member of ARM Total Design, an ecosystem building custom silicon solutions based on Arm Neoverse CSS.

Qualcomm Targeting Data Centers (Again)
Unlike Nvidia, Broadcom, and other big chip vendors, Qualcomm has not benefited from the data center boom over the past three years. Qualcomm’s business has traditionally been dominated by sales of processors and modems for smartphones. With the data center market expected to be the fastest-growing segment for semiconductors over the next five years, penetrating this market is now part of Qualcomm’s broader strategy to diversify its business and is an opportunity that Qualcomm cannot afford to miss.

However, the data center CPU market remains highly competitive and is dominated by Intel and AMD. In addition, all the big hyperscalers such as AWS, Google, Meta and Microsoft have developed their own ARM-based custom CPUs. Clearly, Qualcomm believes that there is room for a new entrant and believes that the market will see a lot of new investment for years to come. At Computex in Taiwan, CEO Amon announced that Qualcomm would provide details about its CPU roadmap very soon.

Rationale for the Deal
There are a lot of synergies in this deal for both Qualcomm and Alphawave. Alphawave’s technology directly complements Qualcomm’s AI ambitions, potentially allowing it to compete with rivals such as Nvidia and AMD. Alphawave, in turn, will benefit from Qualcomm size and financial resources. Key benefits for Qualcomm include:

• Key Data Center Connectivity IP - Qualcomm lacks key data center connectivity IP, particularly SerDes. Developing this in-house would have required significant investment and would probably have taken several years. Qualcomm’s interest in Alphawave therefore stems from its strategic push beyond mobile into high-growth areas such as AI compute, data centre acceleration, automotive and custom silicon — all of which require advanced connectivity IP such as SerDes, PCIe, CXL and UCIe.
• Custom Silicon and ASICs - a deal with Alphawave will not only strengthen Qualcomm’s IP portfolio but also give it a foothold in the custom silicon and ASIC market, allowing it to compete more effectively in building next-generation compute infrastructure with players such as AMD, Nvidia, AWS, and other hyperscalers.
• Lack of alternatives – the only other companies with Alphawave’s expertise are major chip vendors such as Broadcom, Marvell, Nvidia, etc. SerDes enables ultra-fast data transmissions between chips in servers and networks—critical for AI workloads. SerDes has given Broadcom and Marvell a competitive edge, leading to major AI chip wins with companies such as Google, Open AI and AWS and Meta respectively. Nvidia has also developed its own SerDes technology and plans to license it to other companies as part of its custom chip business.

• Low valuation - the relatively low valuation of Alphawave – around $1 billion before Qualcomm’s approach on April 1st – provides Qualcomm with a unique opportunity to acquire a strategically vital company with strong long-term growth potential at a significant discount.
  

  Figure 1 provides a summary SWOT chart for Alphawave from the recently published report “Qualcomm to Acquire Alphawave Semi”.

Analyst Viewpoint
By acquiring Alphawave, Qualcomm gains critical in-house IP, reduces reliance on third-party vendors while enhancing its ability to serve hyperscalers and automotive clients with differentiated and tightly integrated solutions. However, the following points should be considered:

• Business model issues- Alphawave’s business model is based on being technology-agnostic and partner-friendly and the company works with a wide array of customers and foundries. As an independent company, Counterpoint Research believes that Alphawave is well-positioned to benefit from the trend in semiconductor outsourcing to third-party IP holders, especially with the recent announcement from Nvidia to partly open up its proprietary NVLink architecture via NVLink Fusion. This widens the ecosystem opportunity for third-party silicon and IP vendors and signals a major shift in the data center landscape, where heterogeneous, modular compute architectures built using chiplets and high-speed interconnects are becoming the new norm.
  In many ways, Alphawave’s success to date is the result of remaining independent and flexible in a semiconductor landscape that values neutrality and ecosystem openness. Although Nvidia’s Fusion announcement will open up a significantly larger addressable market for Alphawave’s IP and custom silicon services, its integration into a large, vertically aligned company such as Qualcomm could compromise its independent identity and possibly alienate existing and prospective customers.
  

• Data center market is very competitive - Qualcomm tried to enter the data center market before but failed. In addition to Intel and AMD, it will be competing against incumbents such as Nvidia, Broadcom and Marvell, as well as hyperscale giants such as AWS, Google, Meta and Microsoft. Although Qualcomm’s CEO firmly believes that the market can accommodate another player, it remains to be seen how quickly and how much of an impact Qualcomm will make in the data center market.

• Relationship with ARM - Alphawave has a close partnership with ARM to develop advanced solutions based on ARM’s Neoverse CSS. In contrast, Qualcomm has had quite a fractious relationship with ARM in recent years. A few months ago, ARM was also interested in acquiring Alphawave but decided not to make a formal offer. Counterpoint Research believes that this was mainly due to regulatory issues with Alphawave’s joint-venture in China. It remains to be seen how this collaboration between ARM and Qualcomm will now pan out.

• Other concerns - include regulatory delays and execution failure. For example, Qualcomm’s acquisition of NXP failed in 2018 due to regulatory delays. In addition, data center customers may resist switching from established suppliers unless Qualcomm can deliver sizeable improvements in performance and/or price.

Despite the above concerns, Counterpoint Research believes that this is an excellent strategic decision by Qualcomm as it enables the company to become a full-stack AI data center provider. In fact, Alphawave is virtually the only small company offering high-performance interconnect IP across multiple foundries that is available to be acquired. The acquisition should considerably increase Qualcomm’s chances of penetrating the data center market over the next few years.

Report

Counterpoint Research’s recently published report “Qualcomm to Acquire Alphawave Semi” provides an overview of Alphawave Semi and reviews Qualcomm’s rationale for acquiring Alphawave. It is available to Counterpoint Research clients.

Table of Contents

Key Takeaways

Introduction

Alphawave Product Portfolio

Alphawave Partner Ecosystem

SWOT Analysis

Financials

Qualcomm’s Interest in Alphawave

Analyst Viewpoint