Business– US-China trade war: Qualcomm officially scraps $44-bn NXP deal

July 26, 2018
San Francisco: In a big fallout of the escalating US-China trade tensions, San Diego-based chipmaker Qualcomm on Thursday officially terminated its $44 billion acquisition of Dutch tech firm NXP Semiconductors after the Chinese regulators let the final deadline pass and did not grant approval to the deal.

Paving the way for a $30 billion stock buyback, the company also announced to pay a termination fee of $2 billion to NXP Semiconductors that makes automotive, security and Internet of Things (IoT) solutions.

“Our core strategy of driving Qualcomm technologies into higher growth industries remains unchanged.

“We will continue to focus on our strong momentum in new growth industries with projected revenues of approximately $5 billion for fiscal year 2018 — up greater than 70 per cent from fiscal year 2016,” Steve Mollenkopf, CEO of Qualcomm, said in a statement on Thursday.

The two companies entered into one of the largest tech deals in October 2016 and the deadline to close the deal was extended several times as they waited for China to approve or deny the merger.

Eight of the nine countries where Qualcomm has businesses had approved the deal.

In an earlier statement on Wednesday, Mollenkopf said: “We intend to terminate our purchase agreement to acquire NXP when the agreement expires at the end of the day today, pending any new material developments”.

With no answer from China’s Ministry of Commerce as the deadline passed on Thursday morning, it was clear that the merger was officially dead.

Qualcomm, however, said it continues to achieve strong growth, accelerated by its expansion and momentum in the areas of IoT, automotive, RF Front End (RFFE), compute and networking.

“We believe our technology leadership and disciplined execution will drive significant value creation for our stockholders,” Mollenkopf added in the fresh statement.

The news came as a setback for the experts.

“China delaying and finally not approving the QCOM-NXP acquisition is a big blow to Qualcomm’s ambition to scale into automotive, IoT and security verticals,” said Neil Shah, Research Director at Counterpoint Research.

“Further to that, the current trade war and previous stance by US on companies such as Huawei, ZTE and other rejected M&A activity (e.g. Micron) has just compounded the matter for Beijing to disapprove the M&A activity, Qualcomm being the casualty,” Shah tweeted.

The US, however, lifted the ban on Chinese tech firm ZTE earlier this month after it deposited $400 million in an escrow account in the US.

In March, US President Donald Trump had blocked Singapore-based Broadcom’s $117 billion proposed buyout of Qualcomm over national security grounds.

Meanwhile, Qualcomm reported a revenue of $5.6 billion for the third quarter, saying the revenue in the third quarter grew four per cent year-on-year. The net income was $1.2 billion.

“We reported results significantly above our prior expectations for our fiscal third quarter, driven by solid execution across the company, including very strong results in our licensing business,” Mollenkopf said.

The company also announced that it does not expect to supply wireless chips for upcoming iPhones.

Qualcomm is a major supplier of 4G chips for smartphones.

“We believe Apple intends to solely use our competitor’s modems rather than our modems in its next iPhone release,” Qualcomm Financial Chief George Davis was quoted as saying in a CNET report.

Apple and Qualcomm have been fighting over patents since the beginning of 2017.

“Qualcomm didn’t say which company will supply modems for the next iPhone, but it is believed to be Intel,” the report added.

With iPhone 7 and 7 Plus launch in 2016, Apple began using Intel chips in some variants of iPhones.

However, some media reports said Apple has reportedly conveyed a message to Intel, saying it will not be using the chipmaker’s 5G modems for 2020 iPhone models.
(IANS)

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