Will China Approve Qualcomm’s NXP Acquisition?

by Trefis Team
-3.48%
Downside
65.28
Market
63.01
Trefis
QCOM
Qualcomm
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Qualcomm’s (NYSE:QCOM) deal to purchase NXP Semiconductors has been caught in the crosshairs of the trade tensions between the U.S. and China, with the Chinese government holding up regulatory approval of the $44 billion deal. The deal has already been cleared by eight out of nine relevant global regulators, with only clearance by Chinese authorities pending. However, there have been some recent developments in U.S.-Chinese trade relations which could bode well for the deal to go through.

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Recent Developments Could Help The Deal 

Beijing has long postponed green-lighting the deal, which was first announced in October 2016. While the competitive aspects of the deal, which are expected to give Qualcomm a significant edge in the automotive semiconductor space, are likely to be a concern, a key reason for the delay in approvals is likely the trade tensions between the U.S. and China and the U.S. export ban placed on Chinese telecom equipment behemoth ZTE amid alleged violations of Iran sanctions. However, the Trump Administration’s recent indications that it was looking to solve the ZTE issue could help ease some of the tension. Moreover, Chinese and U.S. officials are meeting this week in Washington for another round of trade-related talks, and any progress in resolving their differences could prove positive for Qualcomm’s takeover plans.

Why NXP Deal Is Important For Qualcomm

Qualcomm has been facing headwinds on multiple fronts, as it contends with a saturating smartphone market as well as legal challenges for its lucrative patent licensing business. The NXP acquisition is crucial to Qualcomm, as it would be able to diversify its business away from the saturating smartphone market towards other fast-growing areas such as the Internet of Things and automotive semiconductors. Automotive vendors have been packaging more computing power into their vehicles, and the trend is likely to accelerate as autonomous vehicles become more mainstream. NXP, being the largest vendor of automotive semiconductors with a 14% market share, is likely to benefit significantly from this trend. Qualcomm has estimated that markets including automotive semiconductors, security, and internet-connected devices could be worth ~$77 billion by 2020.

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