Qualcomm drops $44 bn bid for NXP due to China

Qualcomm, the world’s biggest maker of chips for mobile phones, said on Wednesday it would drop its $44 billion bid for NXP Semiconductors, Reuters reported. This is because Qualcomm did not secure regulatory approval from China till July 25.
Qualcomm chips for mobile InternetEarlier, Qualcomm could block a $117 billion hostile takeover bid from Singapore-based rival chip maker Broadcom.

The collapse of the largest-ever merger of two chip companies may discourage other U.S. firms hoping to buy into China’s developing markets and companies, although technology deals seemed the main concern, the report said.

“We obviously got caught up in something that was above us,” Qualcomm CEO Steve Mollenkopf said in an interview after the announcement. “We think moving on, reducing the amount of uncertainty in the business and increasing the focus is the right thing to do with the company.”

Approval from China, the last of nine global regulators to be consulted, was important for Qualcomm because the country accounted for nearly two-thirds of its semiconductor revenue last year. Qualcomm will be paying a termination fee of $2 billion to NXP.

Analysts say Qualcomm will have to focus on expanding beyond making mobile chips. Its focus on 5G will bring more revenue post 2020.

Qualcomm predicted on Wednesday that Apple would drop the company’s chips from its next-generation iPhones in favor of modems from Intel. Qualcomm’s revenue projections had already assumed it would gain no new revenue from Apple.

Qualcomm is essentially back to square one without the deal with NXP. The need for more revenue from diversification was important because Qualcomm will not generate revenues from Apple that would use alternative suppliers such as Intel for modems in its next iPhone model, Bloomberg reports.

Qualcomm revenue

The San Diego chipmaker has posted 4.2 percent increase in revenue to $5.60 billion in the quarter ended June 24 from $5.37 billion a year earlier.

The marginal increase in quarterly revenue was helped by demand for its latest Snapdragon chipset from smartphone customers including Samsung Electronics from Korea and Xiaomi from China.

Qualcomm sold $3 billion of chips last year for non-phone use, up 75 percent from two years ago. It has a $5 billion “backlog” of chip sales to the automotive industry, in which NXP is also a dominant player.

Qualcomm faces challenges, including expectations that its chips will not be in the next round of Apple’s iPhones and the need to find new markets beyond mobile phones without NXP’s help.

But it cited progress on one of two major patent royalty conflicts with China-based phone-maker Huawei Technologies, in the form of a $700 million interim agreement, $500 million of which was paid this quarter.