China Is said to push Qualcomm for more remedies in NXP deal

Qualcomm’s logo is seen at its booth at the Global Mobile Internet Conference (GMIC) 2015 in Beijing, April 28, 2015. — Reuters file picQualcomm’s logo is seen at its booth at the Global Conference (GMIC) 2015 in Beijing, April 28, 2015. — Reuters file picSAN FRANCISCO, March 21 — In the latest complication for Qualcomm Inc, ’s regulators are seeking more protections for local companies before approving the US chipmaker’s proposed purchase of NXP Semiconductors NV, according to people familiar with the matter. That could jeopardise Qualcomm’s bid to survive as an independent company.

The concerns raised by Beijing have surfaced about a week after President Donald Trump said he was blocking Broadcom Ltd’s proposed acquisition of Qualcomm to prevent China from stealing a technological march on the US

China’s Ministry of Commerce isn’t satisfied with the remedies that Qualcomm has offered so far and has told the company to propose more, said the people, who asked not to be identified because the discussions are private. Many companies are lobbying the powerful ministry, arguing the deal will hurt them and should be blocked. They’re particularly concerned the combined entity would extend Qualcomm’s patent licensing business into the areas of mobile payments and parts for autonomous driving systems, the people said.

China, the world’s largest importer of semiconductors, seeks to build a world-class chip industry and further wean the country off a reliance on foreign technology. The government is said to be raising as much as US$31.5 billion to invest in homegrown chip companies. Shares in chipmakers Unigroup Guoxin Co. and Shanghai Belling Co. climbed as much as 4 per cent before backtracking in the afternoon. NXP fell less than 1 per cent to US$122.25 at 10:08 a.m. in New York while Qualcomm was little changed at US$58.13.

“The news is consistent with China’s supportive policy for local semiconductor players,” said Zhang Haidong, Shanghai-based fund manager with Jinkuang Investment Management. The move conveys an impression that Beijing “aims to help local companies catch up with their global peers through suppressing the expansion of global competitors.”

Qualcomm and the Ministry of Commerce declined to comment.

Closing the transaction is crucial to Qualcomm’s stand-alone plan after it fought off a hostile takeover bid by Broadcom that forced its management to give commitments for future business expansion and earnings that it’ll now have to deliver. NXP is essential to Qualcomm’s move to lessen its dependence on a smartphone market that is slowing and where competitors and customers are increasingly fighting to overturn its dominance.

Qualcomm’s largest-ever transaction was announced more than a year ago. The San Diego-based chipmaker had told investors it would be closed by the end of 2017. The process was complicated by Broadcom’s bid for Qualcomm and activist hedge funds who bought NXP stock and forced Qualcomm to raise the offer to US$127.50 a share from the earlier agreed offer of US$110. That 16 per cent increase was enough to secure support from holders, including activist Elliott Management Corp., of about 28 per cent of NXP’s stock.

“The most pressing near-term issue for Qualcomm now is to complete the NXP transaction,” said Chris Caso, an analyst at Raymond James & Co, in a research note. “If the NXP deal were to be blocked by China (perhaps due to trade retaliation) that would lower the floor for the stock by a commensurate amount (on the order of ~US$10).”

Those who bet on the NXP deal are looking at the decision-making in Beijing closely. Qualcomm is unique in the in getting the majority of its profit from licensing patents. It uses its ownership of inventions that cover the fundamentals of modern phone systems to bring in high-margin revenue that it uses to fund its industry-leading research and development.

It won the right to extend that license business to China in 2015 after paying a fine and agreeing to charge lower rates to local customers on phones for that market. Part of the argument that won over Chinese regulators was that handset makers would be free from legal challenges in export markets because they were protected by its patent coverage. While that may have won support from some constituents in the world’s largest market for , others are still labouring to field competitive products to Qualcomm and have little incentive to help it.

China is the biggest worldwide market for semiconductors yet doesn’t have a company that ranks among the top ten producers. Its government has made developing a domestic chip industry a national priority, allocating funds for local champions. Part of that push has been stalled by the US government’s blocking attempts by Chinese entities to buy assets. — Bloomberg

Source: The Malay Mail Online

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