Qualcomm has agreed to acquire Alphawave, valuing the company at $2.4 billion. Qualcomm’s stated goal is to complement its CPU and AI accelerator (NPU) technology, specifically to help build custom data-center processors. The acquisition is the most tangible evidence yet of the company’s data-center ambitions and a strategy rooted in custom chips.
Qualcomm’s Ongoing Pursuit
Qualcomm has chased data-center dreams for more than 10 years. Based on an in-house Arm-compatible design, the Centriq server processor fizzled and disappeared from public consciousness. (“These are not the server chips you were looking for.”) The generically named Cloud AI 100 NPU has flopped around in various guises since 2019. These products’ technical shortcomings partially account for their failure.
Changing Strategies
Strategy, however, is the decisive factor. There’s no existence proof for merchant-market Arm-based server processors or non-Nvidia AI chips, but hyperscaler-proprietary Arm-based CPUs and NPUs have proven viable. Broadcom’s and Marvell’s ASIC (custom-chip) businesses have flourished by helping cloud service providers craft silicon, and MediaTek is building a custom chip (likely a follow-on to Google Trillium).
However, the high-end ASIC business hinges on a niche technology: leading-edge serdes, the speedy I/O circuits that connect chips. Cofounded in 2017 by CEO Tony Pialis, who had previously started and sold serdes companies Snowbush and V Semiconductor, Alphawave has 224 Gbps serdes, along with other licensable technology (IP) and an established ASIC business. (Like rivals Broadcom and Marvell, it also has optical-networking PHYs, called DSPs but distinct from general DSPs.)
Adding Qualcomm’s Oryon CPU and Hexagon NPU/DSP designs to the Alphawave business is a potent combination. We suspect Qualcomm has multiple hyperscalers interested in Oryon (and maybe Hexagon), and acquiring Alphawave positions it to convert these prospects into customers. (Note that Qualcomm was cited as a lead partner in the Nvidia NVLink Fusion program.) Alphawave is commanding a hefty price, which these potential customers could justify.
Outbidding Arm
A few months ago, Arm approached Alphawave, according to Reuters. Arm, too, has sought to enter the ASIC business, focusing on hyperscalers interested in its CPUs. We believe the company has won designs at two companies for server chiplets, if not entire processors. Lacking the fastest serdes, it sought Alphawave, putting that company into play. Sitting on $10 billion in cash and unafraid to bet big (cf. Nuvia), Qualcomm had the deep pockets and long arms needed to seal the deal. We conclude that Arm’s majority shareholder, SoftBank, which acquired defunct NPU supplier Graphcore and struggling server-processor vendor Ampere, was content to see Arm’s nemesis outbid it.
Bottom Line
In summary, Alphawave is a logical Qualcomm target. The deals it enables the phone-chip maker to win may justify its rich valuation. Keen to diversify and capitalize on the data-center and AI gold rushes, Qualcomm should be more successful pursuing a custom-silicon strategy than competing head-on with AMD/Intel and Nvidia in merchant-market CPUs and AI accelerators. Our nagging concern is that hyperscalers are a small group. Each new supplier pursuing them slices the market pie into smaller pieces, complicating chip companies’ paths to success.