Qualcomm’s plans to take over NXP Semiconductors have hit a hurdle in China, where regulators are expressing concerns about the effect the acquisition could have on local companies, Bloomberg reported. Sources familiar with the matter are saying that China’s Ministry of Commerce has asked Qualcomm to propose more remedies, finding the ones offered insufficient. Many Chinese companies are calling for the deal to be blocked, saying the combined entity would extend Qualcomm’s patent licensing business into the areas of mobile payments and parts for autonomous driving systems. Qualcomm and the Ministry of Commerce declined to comment.
Qualcomm made its bid for NXP over a year ago, raising it more recently to sweeten the deal, also at the prompt of activist hedge funds who had bought shares in NXP. Qualcomm also made commitments for future business expansion and earnings that will be harder to deliver if the NXP buy does not go through. Finally, NXP is important for Qualcomm as it looks to diminish its dependence on a smartphone market that is slowing amid heightened competition.
China is the world’s largest importer of semiconductors but it does not yet have a company ranking among the top ten producers. The government has made the development of a domestic chip industry a national priority and is said to be raising up to USD 31.5 billion to invest in local chip companies such as Unigroup Guoxin and Shanghai Belling. Part of China’s efforts have themselves been stalled by the US government blocking takeover bids by Chinese companies. One example of this is the failed acquisition of Lattice Semiconductor by Canyon Bridge Capital Partners, backed by the Chinese government. Another example of the cautious approach of the US is the red light given by the White House for the takeover of Qualcomm by Broadcom, due to national security concerns.
Qualcomm gets most of its profit from licensing patents. It then funnels that money into research and development. The company won the right to extend that license business to China in 2015 after paying a fine and agreeing to charge lower rates to local customers on phones for that market. Part of the argument that won over Chinese regulators was that handset makers would be free from legal challenges in export markets because they were protected by its patent coverage.
