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Qualcomm’s (QCOM - Free Report) proposed acquisition of NXP Semiconductor (NXPI - Free Report) has hit a roadblock with the Chinese Ministry of Communications (MOFCOM) saying that Qualcomm must make more concessions for local players. Qualcomm resubmitted a revised proposition this week, giving the government another 180 days to decide.
While deteriorating U.S.-China trade relations may be partly responsible for the Chinese government’s apathy, there are other important considerations.
China’s stated goal is to become self-sufficient in chip production and the government also has some ambitious goals in self-driving technology, artificial intelligence and mobile. As a result, it has invested billions of dollars into homegrown companies and the kind of educational institutions that will churn out very high volumes of researchers.
Naturally, the government won’t do anything to upset its plans, and certainly not anything that will strengthen international players vis-a-vis the local players it has so painstakingly grown. So when those local players petition the government that they will be adversely impacted by the deal, especially in the areas of self-driving cars and mobile payments, there’s no way the government won’t take notice.
In Qualcomm’s case, it’s more about expansion into emerging markets like self-driving cars and IoT at a time when growth in its core mobile phone business is declining. True that it has a leading share of the standard essential patents in 5G and is already partnered with most handset makers and telecoms for the standard. But this may not in itself satisfy investors given its already-leading position in the slowing market. And particularly since its fallout with Apple means a necessarily negative impact.
Qualcomm also has another problem: in defending its stand against Broadcom’s (AVGO - Free Report) hostile takeover, the company has touted its 5G strength and growth prospects resulting from the NXP acquisition. Now if the deal doesn’t go through as planned, investors might actually go ahead and replace the board as Broadcom threatened to do earlier. So for Qualcomm it’s an existential issue.
The Chinese government is likely to take its time and whether or not the deal goes through as planned by yearend depends entirely on the concessions Qualcomm has agreed to this time.
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
China's MOFCOM Delays Qualcomm-NXP Merger
Qualcomm’s (QCOM - Free Report) proposed acquisition of NXP Semiconductor (NXPI - Free Report) has hit a roadblock with the Chinese Ministry of Communications (MOFCOM) saying that Qualcomm must make more concessions for local players. Qualcomm resubmitted a revised proposition this week, giving the government another 180 days to decide.
While deteriorating U.S.-China trade relations may be partly responsible for the Chinese government’s apathy, there are other important considerations.
China’s stated goal is to become self-sufficient in chip production and the government also has some ambitious goals in self-driving technology, artificial intelligence and mobile. As a result, it has invested billions of dollars into homegrown companies and the kind of educational institutions that will churn out very high volumes of researchers.
Naturally, the government won’t do anything to upset its plans, and certainly not anything that will strengthen international players vis-a-vis the local players it has so painstakingly grown. So when those local players petition the government that they will be adversely impacted by the deal, especially in the areas of self-driving cars and mobile payments, there’s no way the government won’t take notice.
In Qualcomm’s case, it’s more about expansion into emerging markets like self-driving cars and IoT at a time when growth in its core mobile phone business is declining. True that it has a leading share of the standard essential patents in 5G and is already partnered with most handset makers and telecoms for the standard. But this may not in itself satisfy investors given its already-leading position in the slowing market. And particularly since its fallout with Apple means a necessarily negative impact.
Qualcomm also has another problem: in defending its stand against Broadcom’s (AVGO - Free Report) hostile takeover, the company has touted its 5G strength and growth prospects resulting from the NXP acquisition. Now if the deal doesn’t go through as planned, investors might actually go ahead and replace the board as Broadcom threatened to do earlier. So for Qualcomm it’s an existential issue.
The Chinese government is likely to take its time and whether or not the deal goes through as planned by yearend depends entirely on the concessions Qualcomm has agreed to this time.
Qualcomm and Broadcom have a Zacks Rank #3 (Hold) while NXP has a Zacks Rank #4 (Sell). So it’s better to take a look at the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here instead.
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Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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