Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Will China Kill Qualcomm’s Takeover of NXP Semiconductors?

By Leo Sun - Mar 20, 2018 at 11:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The chipmaker could become a pawn in the trade games between Washington and Beijing.

President Trump recently blocked Broadcom's ( AVGO 1.03% ) attempted takeover of Qualcomm ( QCOM -0.29% ) with an executive order, claiming the deal raised questions about national security and the future of 5G technologies. Broadcom is based in Singapore and Qualcomm is an American company. 

The move lets Qualcomm catch its breath as Broadcom has to back off, but the long-term consequences could hurt Qualcomm. That's because blocking Broadcom's takeover could impact Qualcomm's planned takeover of Dutch chipmaker NXP Semiconductors ( NXPI 1.97% ), which can't proceed unless it's approved by China's Ministry of Commerce (MOFCOM). Eight of the nine regulatory bodies whose approval is needed have already given the deal antitrust clearance; only China is left.

Glass chess pieces on a  chess board.

Image source: Getty Images.

Following the protectionist ripples

Trump and the CFIUS (Committee on Foreign Investment in the United States) previously blocked several attempted takeovers of U.S. companies by Chinese firms, including Canyon Bridge's bid for Lattice Semiconductor, Alibaba-backed Ant Financial's bid for Moneygram, and the China Integrated Circuit Industry Investment Fund's bid for Xcerra.

President Trump and the CFIUS are seemingly opposed to most foreign takeovers of domestic companies. Therefore, the idea of a Singapore-based chipmaker acquiring one of the top American chipmakers seemed doomed to fail.

While its headquarters are in Singapore, most of Broadcom's operations and investors are in the U.S. The company, which was called Avago Technologies until it bought the original Broadcom and assumed its brand in 2016, was in the process of relocating its headquarters to the U.S. when the Qualcomm deal was blocked.

The Chinese government is also protectionist when it comes to foreign companies entering its market and cross-border M&A activities. It fined Qualcomm nearly $1 billion in late 2015 over its controversial licensing fees, and forced it to cut those fees for Chinese OEMs.

Regulators have also raided the Chinese offices of foreign companies like Microsoft and Daimler's Mercedes-Benz on vague antitrust charges. Foreign companies that form joint ventures with domestic companies generally receive more favorable treatment from regulators than those that don't.

However, many of those partnerships required foreign companies to share their technologies with their Chinese peers. Broadcom was notably partnered with Chinese tech companies HBC, Inspur, and StarTimes. Opponents of Broadcom's bid claimed that the chipmaker could eventually share Qualcomm's wireless technologies with those Chinese firms.

How the NXP deal could be affected

Meanwhile, MOFCOM is notorious for making slow decisions. It sat on Western Digital's takeover of Hitachi's hard drive unit for over three years before it finally approved the deal -- with some major restrictions on the integration of the two brands.

A robot holding a Chinese flag.

Image source: Getty Images.

MOFCOM also only approved the deal after Western Digital agreed to let state-backed Tsinghua Holdings take a 15% stake in the company. However, Tsinghua eventually dropped the plan after the investment was flagged for a probe by U.S. regulators under President Obama.

With President Trump now adopting a more protectionist stance, MOFCOM could turn up the heat on Qualcomm. MOFCOM likely knows that Qualcomm desperately needs to close its buyout of NXP, the biggest automotive chipmaker in the world, to diversify its business away from mobile chips.

Therefore, MOFCOM could pressure Qualcomm to let Tsinghua take a stake in the newly combined company, or push Qualcomm toward additional joint ventures with local chipmakers. But if Qualcomm agrees to those terms, it could trigger a probe from U.S. regulators regarding national security and 5G concerns again -- which would delay the merger again.

MOFCOM could also simply sit on the deal. None of these potential outcomes would be favorable to Qualcomm, which could become a pawn in Washington and Beijing's protectionist trade games.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NXP Semiconductors N.V. Stock Quote
NXP Semiconductors N.V.
$227.12 (1.97%) $4.39
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
$176.51 (-0.29%) $0.52
Broadcom Limited Stock Quote
Broadcom Limited
$558.12 (1.03%) $5.67

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/05/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.