US chips giant Qualcomm has abandoned efforts to buy NXP Semiconductors, a Dutch rival, in a $44 billion deal after it was unable to secure regulatory approval from Chinese authorities.
A failure to rubber-stamp the deal has already been taken as a possible sign the Chinese government is retaliating against the US imposition of tariffs on billions of dollars of Chinese imports.
Qualcomm Inc. (Nasdaq: QCOM) hoped the takeover of NXP Semiconductors N.V. (Nasdaq: NXPI) would fuel its expansion into the Internet of Things and connected car markets, in which NXP has carved out a strong position. (See Qualcomm Cuts Jobs as It Seeks Chinese Approval for NXP M&A.)
It had already secured approval from other regulators but could not complete the deal without China's acquiescence because of the amount of business it does in the Chinese market.
In a brief statement on the upset, Qualcomm said it would pay a termination fee of $2 billion to NXP and played down the impact on its strategy and outlook.
"Our core strategy of driving Qualcomm technologies into higher growth industries remains unchanged," said Steve Mollenkopf, Qualcomm's CEO, in a statement. "We will continue to focus on our strong momentum in these growth industries with projected revenues of approximately $5 billion for fiscal year 2018, up greater than 70% from fiscal year 2016."
The news came shortly after the publication of results in which Qualcomm warned that a deadline for Chinese approval was imminent.
"In the absence of approval from SAMR [the State Administration for Market Regulation in China], we expect to terminate the transaction after 12.59 p.m. New York time on July 25, 2018, which is the 'end date' for the transaction under the definitive agreement," said the company.
Qualcomm also said that in the event of failing to secure Chinese approval it would repurchase up to $30 billion of its outstanding common stock.
The deal had been held up for months amid growing tension between the US and Chinese governments.
Besides slapping tariffs on a range of Chinese imports, US authorities have taken an increasingly tough line against Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), China's two biggest makers of network equipment and smartphones.
A ban on the sale of US components to ZTE -- which stood accused of violating sanctions against Iran and North Korea -- was recently lifted after the company agreed to pay a $1.4 billion fine and make a series of management and organizational changes. (See Senate Republicans Capitulate to Trump's ZTE Deal .)
Because China buys far less from the US than it sells there, its ability to hit back with tariffs of its own is relatively limited. Instead, authorities may feel that blocking deals such as the Qualcomm bid for NXP is the most effective way to retaliate.
Qualcomm's results for its fiscal third quarter showed a 6% increase in revenues, to $5.6 billion, compared with the year-earlier period. Net income rose 22%, to $1.5 billion.
The manufacturer said its results had been hit by ongoing litigation with iPhone maker Apple Inc. (Nasdaq: AAPL) and other licensees, which has chewed into revenues at its licensing business.
At the chips part of the company, sales were up 1% in the quarter, to about $4.1 billion, compared with the year-earlier period. The licensing business recorded a 25% increase in revenues, to about $1.5 billion, over the same period.
In his own statement on the collapse of the Qualcomm deal, NXP CEO Richard Clemmer said: "While it is unfortunate that the semiconductor powerhouse that would have resulted from this transaction with Qualcomm could not close after 21 months of diligent efforts by the team, we are confident in our future as an independent market leader and will continue to focus our efforts to drive our long-term strategy in our leadership markets of automotive and secure IoT solutions."
NXP today reported a 4% increase in second-quarter revenues, to about $2.3 billion, and said operating income dipped 1%, to $618 million, compared with the year-earlier period.
The Dutch firm said the US ban on product shipments to ZTE had hurt sales at its RF power and digital networking division.
— Iain Morris, International Editor, Light Reading