Qualcomm Kills NXP Acquisition in Wake of China Trade War

Qualcomm has abandoned its $44 billion deal to buy Dutch chipmaker NXP Semiconductors after China held up approval of the transaction for more than 20 months. The death of the deal means that Qualcomm will buy back up to $30 billion of its stock in an attempt to raise share prices. China dragged its heels after the Trump administration imposed tariffs on numerous Chinese goods and China retaliated. Experts say China withheld approval of the sale to gain leverage in negotiations with Washington.

The New York Times reports that, “eight other jurisdictions, including the United States, had already approved Qualcomm’s purchase of the Dutch chipmaker,” with China as the only exception. Trump previously aided Qualcomm when he blocked a $117 billion hostile takeover by rival Broadcom, “after a federal committee said an acquisition would reduce research spending on wireless technology essential to national security.”

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Qualcomm released its quarterly earnings, with “quarterly net income increased 41 percent on a 4 percent rise in revenue,” which hit above expectations.

Qualcomm chief executive Steve Mollenkopf spoke about the uncertainty surrounding the deal, which triggered the “difficult decision.” “We weighed that risk against the likelihood of a change in the current geopolitical environment, which we didn’t believe was a high-probability outcome in the near future,” he said.

By pulling back on the deal, Qualcomm is “expected to pay NXP a $2 billion breakup fee,” and now “must convince shareholders that it can expand its business without NXP,” which the company anticipated would speed its expansion into “chips for cars, mobile payments and other applications.”

Qualcomm currently derives most of its revenue from mobile phone chips, but “most of its profit comes from charging handset makers patent royalties based on a percentage of the wholesale price of their products,” which has prompted “a series of legal battles with antitrust authorities and customers, including Apple.”

Mollenkopf revealed it received a $500 million payment, “from another licensee that has been resisted paying royalties.” Although it didn’t disclose the identity of the company, “analysts believe it is China’s Huawei.”

“Mollenkopf’s go-it-alone strategy rests in large part on 5G,” and the company has “built a lucrative head start over rivals in delivering wireless chips when the current generation of 4G networks began arriving in 2010.” Qualcomm recently demonstrated a software simulation showing that, “a typical 5G user in San Francisco would get a 17-fold increase in average download speeds.”

“With every passing week, carriers around the world are announcing an expansion of their 5G rollouts, and we are a partner to nearly all of them,” said Mollenkopf. Some analysts, however, have “questioned the strength of demand for 5G services as well as Qualcomm’s lead over rivals.”

Meanwhile, China has suggested that it is still open to the original NXP acquisition. According to CNBC, “China’s State Administration for Market Regulation said in a statement on Friday that proposals put forth by the firms to resolve Chinese antitrust concerns were insufficient, but it hoped to continue communicating with Qualcomm.”