SAN FRANCISCO – Qualcomm has abolished its $ 44 billion agreement to buy NXP Semiconductors after Chinese regulators failed to decide on the transaction in the midst of a trade war between Washington and Beijing
The company had already warned that the deal was probably scrapped, assuming that the Chinese authorities did not agree at the last minute, there was a midnight appointment. The official cancellation was first announced by NXP, which said that Qualcomm announced it had announced its termination on Thursday. NXP then announced Qualcomm's $ 2 billion qualifying fee.
Trade experts had said that China apparently withheld approval of the Qualcomm agreement to bargain. Eight other countries, including the US, had already approved the acquisition of the Dutch chipmaker by Qualcomm. China was the exception and pulled the review process beyond 20 months.
The developments followed President Trump's actions to support Qualcomm earlier this year. In March, it blocked a [$ 4,790,228] $ 117 billion bid for Qualcomm by a rival chipmaker, Broadcom, after a federal committee said a deal would cut research spending on radio technology, which is important to national security.
Completion of the acquisition was midnight Eastern Time.
Steve Mollenkopf, head of Qualcomm, said the decision was difficult due to the need to end the uncertainty surrounding the deal.
"We weighed this risk against the likelihood of a change in the current geopolitical environment that we were unconvinced that would likely result in the near future," he told analysts on a Wednesday afternoon teleconference. Qualcomm announced quarterly earnings and sales higher than its forecast on Wednesday.
The result is a setback for Qualcomm of San Diego.
Now it must convince the shareholders that it can expand its business without NXP speed of expansion of Qualcomm into chips for cars, mobile payments and other applications. The company has announced plans to buy up to $ 30 billion to raise its share price.
Qualcomm generates most of its revenue from selling chips that mobile phones can use to communicate. However, most of the profit comes from charging license fees to mobile phone manufacturers based on a percentage of the wholesale price of their products.
This unusual business model has triggered a series of litigation with antitrust authorities and customers such as Apple. In a positive development for Qualcomm, Mr. Mollenkopf announced that he had received a $ 500 million payment from another licensee who had opposed the payment of royalties. Qualcomm has not disclosed the identity of the company, but analysts believe that it is China's Huawei.
Mr. Mollenkopf's go-it-alone strategy is largely based on 5G, the next generation of mobile technology. Qualcomm predicts that 5G will have many applications for increasing the speed of smartphones, including car-to-car communication to enhance security, virtual reality goggles and wireless alternatives for home Internet service.
Qualcomm built a lucrative edge over competitors in providing wireless chips when the current generation of 4G networks started in 2010. The company believes that it has a comparable technology advantage in 5G, which poses technical challenges that may rely on higher transmission frequencies not previously used in mobile networks. According to him, these obstacles quickly overcame and pave the way for some 5G services in the first half of the year 2019. Qualcomm engineers recently showed a software simulation suggesting that a typical 5G user in San Francisco would achieve a 17-fold increase in average download speeds.
"With each passing week, carriers around the world are announcing an extension of their 5 to G rollouts, and we're partnering with just about everyone," said Mollenkopf.
But some analysts questioned the strength of demand for 5G services and Qualcomm's advantage over competitors. For example, Intel has recently put wireless chips in some Apple smartphones and has announced its own 5G advances. Qualcomm announced Wednesday that Apple expects it will only use competing chips for its next iPhone.
Faced with the challenges, Qualcomm said the core business has improved. The company announced Wednesday that quarterly net income rose 41 percent, up 4 percent.
Qualcomm said that in addition to chips for smartphones, it has a backlog of chips in cars and other non-phone applications totaling $ 5 billion (19659020) Follow Don Clark on Twitter: @ donal888 .
Raymond Zhong contributed reports from Beijing.