Will China Kill Qualcomm Acquire NXP Semiconductors?

President Trump recently blocked Broadcom (NASDAQ: AVGO) trying to take over Qualcomm (Nasdaq: QCOM) with orders from executives, saying that the deal raises questions about the future of national security and 5G technologies. problem. Broadcom is located in Singapore and Qualcomm is an American company.

This move made Qualcomm breathless, because Broadcom must withdraw, but the long-term consequences may harm Qualcomm. This is because blocking Broadcom’s acquisition may affect Qualcomm’s plan to acquire Dutch chip maker NXP Semiconductors (NASDAQ: NXPI), which cannot continue unless approved by the Chinese Ministry of Commerce (MOFCOM). Eight of the nine regulatory agencies that need to be approved have already reached an antitrust deal; only China remains.

After protectionism

Trump and CFIUS previously prevented Chinese companies from trying to acquire US companies, including the acquisition of Lattice Semiconductor by Canyon Bridge, Alibaba’s acquisition of Moneygram by Ant Financial, and the China Integrated Circuit Industry Investment Fund. Bidding for Xcerra.

President Trump and the Foreign Investment Commission seem to object to the majority of foreign acquisitions of domestic companies. Therefore, the Singapore chip maker’s idea of ​​acquiring one of the top chip makers in the United States seems doomed to failure.

Although its headquarters is in Singapore, most of Broadcom’s operations and investors are in the United States. The company was only known as Avago Technologies until it acquired the original Broadcom and became a brand in 2016. The company is moving its headquarters to the United States. Qualcomm’s transaction was blocked.

Glass chess pieces on a  chess board.
For foreign companies entering the market and cross-border M&A activities, the Chinese government is also protectionist. At the end of 2015, Qualcomm imposed a fine of nearly US$1 billion on Qualcomm’s controversial licensing fees and forced it to reduce the cost of Chinese original equipment manufacturers.

Regulators also conducted anti-monopoly accusations against Chinese offices of foreign companies such as Microsoft and Daimler-Benz. Foreign companies that form joint ventures with domestic companies usually receive more preferential treatment from regulatory agencies.

However, many of these partnerships require foreign companies to share their technology with Chinese counterparts. Broadcom has been particularly successful with Chinese technology companies HBC, Inspur and StarTimes. Opponents of Broadcom’s bid claim that the chip maker may eventually share Qualcomm’s wireless technology with these Chinese companies.

How NXP transactions are affected

At the same time, the Commerce Department is notorious for making slow decisions. It finally approved the deal more than three years before Western Digital acquired the Hitachi hard drive division – there are some major restrictions on the integration of the two brands.

After Western Digital agreed to allow state-backed Tsinghua Holdings to hold a 15% stake in the company, the Ministry of Commerce approved only this transaction. However, after the investment was investigated by President Barack Obama’s regulatory agency, Tsinghua University finally gave up this plan.

With President Trump taking a more protectionist position now, the Ministry of Commerce can open up a hot wave of Qualcomm. The Ministry of Commerce is likely to know that Qualcomm urgently needs to close its acquisition of NXP, the world’s largest car chip maker, in order to diversify its business and keep it away from mobile chips.

Therefore, the Ministry of Commerce may exert pressure on Qualcomm to allow Tsinghua to hold shares in the new portfolio companies, or to promote Qualcomm and other local chip makers in other joint venture projects. However, if Qualcomm agrees to these terms, it may trigger investigations by US regulators on national security and 5G issues – which will delay the merger again.

The Ministry of Commerce can also simply participate in the agreement. These potential results are not conducive to Qualcomm, and Qualcomm may become a pawn in the protectionist trade game between Washington and Beijing.