Qualcomm Spikes NXP Acquisition in Wake of U.S.-China Trade War

Officials with the chip maker said it was unlikely that Chinese regulators would OK the acquisition in light of the tensions between the countries.

Qualcomm.NXP.logos

Qualcomm officials will end their $44 billion bid for rival chip maker NXP at midnight ET July 25 unless Chinese regulators change their stance and give their approval to the deal, an unlikely move considering the ongoing trade war between China and the United States.

Speaking on a conference call with financial analysts about the mobile chip maker’s quarterly financial numbers, CEO Steve Mollenkopf said Qualcomm will stick with the self-imposed deadline, saying it didn’t make sense to continue to pursue the deal given the current trade tensions between the two countries.

"The decision for us to move forward without NXP was a difficult one," Mollenkopf said. "Continued uncertainty overhanging such a large acquisition introduces heightened risk. 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.”

Qualcomm officials announced a $38 billion bid for NXP in October 2016 and upped the proposal to $44 billion earlier this year at a time when Qualcomm was fighting off a hostile $117 billion takeover effort by Broadcom. Broadcom’s bid was killed in March per an executive order by the Trump administration, which said the acquisition would represent a possible national security threat to the United States.

Qualcomm Parts with $2 Billion Termination Fee

As part of the agreement with NXP, Qualcomm will pay the company a $2 billion termination fee. In addition, Qualcomm officials, who in May announced a $10 billion share repurchasing program, said they will increase that amount to $30 billion in the wake of the failed NXP acquisition.

Officials with Qualcomm, which is the dominant mobile chip maker in the world, has been expanding the reach of the company’s products into other markets related to mobile computing. That includes 5G networking, the internet of things (IoT), edge computing and laptops, as well as emerging technologies like artificial intelligence (AI) and virtual and augmented reality.

Adding NXP to the fold would have brought Qualcomm even more capabilities in processors and systems-on-a-chip (SoCs) in such growth markets as autonomous vehicles and industrial solutions.

However, it was getting to the point where Qualcomm officials believed they needed to set a deadline, the CEO said. The company needed to begin to focus more on future opportunities and to give stability to employees, customers and investors, he said.

“We feel really good about the business … and we really want to move on,” Mollenkopf said.

Qualcomm Shows Continued Growth in Automotive Sector

He said Qualcomm has shown growth in many areas that the company already is pursuing, noting that the company’s automotive technology business has a $5 billion backlog that is growing.

The trade situation between the United States and China became a rollercoaster ride for Qualcomm. Chinese regulators were the last in the world holding out against the Qualcomm-NXP deal, worried about competition issues. The prospect of the deal getting Chinese approval dimmed when the Trump administration first threatened tariffs against Chinese products, and they were further hurt when the countries began instituting retaliatory tariffs against each other.

However, there were times when those tensions eased, giving Qualcomm officials some hope--in particular when the U.S. Commerce Department lifted a ban against Chinese networking vendor ZTE doing business with U.S. companies. The seven-year ban was put in place as punishment for ZTE for doing business in Iran and North Korea and was badly hurting the Chinese company.

President Trump’s lifting of the ban in return for ZTE concessions—and against the wishes of many U.S. lawmakers—again gave hope that China may OK the Qualcomm-NXP deal. However, such optimism was short-lived as the tariff situation escalated.

The NXP deal was the latest chapter in what has been a volatile couple of years for Qualcomm, which is facing an array legal challenges by device makers—most notably Apple, but also others around the world—over its technology licensing program. Apple officials said Qualcomm’s licensing terms were unfair, prompting Qualcomm to sue Apple for patent infringement. The company has also tried to ban sales of iPhones as part of its lawsuit.