Trump’s trade war may hurt the company he tried to protect
China slow to give regulatory approval on Qualcomm’s deal to buy chipmaker NXP
SAN DIEGO— Steve Mollenkopf, chief executive of Qualcomm, has been waiting for a phone call with news from China. It has been a long wait.
His company, which makes chips that help mobile phones communicate, has been on extended hold while Chinese authorities review a deal that Qualcomm struck 20 months ago to buy another chipmaker, NXP Semiconductors. Mollenkopf said Qualcomm had done all it could to persuade Beijing to approve the $44-billion (U.S.) transaction, which the companies have said will be terminated next Wednesday without regulatory consent.
But both the acquisition and Qualcomm have now become entangled in the trade war raging between the United States and China. China’s prolonged review of the deal for NXP is widely seen by analysts and trade experts as part of Beijing’s retaliation for U.S. President Donald Trump’s tariffs on Chinese goods.
“We want to see it get done,” Mollenkopf, 49, said in an interview at Qualcomm’s headquarters in San Diego. When asked if his company was caught in the trade war, he said, “That’s probably accurate.”
The situation, which may be a sign of what is to come for other multinationals that also have interests dependent on China, is laced with irony. In March, Trump moved to protect Qualcomm when his administration blocked a $117-billion hostile takeover bid for the company by another chipmaker, Broadcom. At the time, Trump said the deal would “impair the national security of the United States” after a government committee found that Broadcom would most likely reduce vital Qualcomm wireless research to the benefit of Chinese companies. Now Trump may end up hurting the company that he sought to shield, in an unintended consequence of the mounting trade hostilities that his administration has spearheaded. Mollenkopf and others have said buying NXP, a Dutch chipmaker, is important to helping Qualcomm move more quickly into technology for cars and other new markets.
A White House spokesperson did not respond to a request for comment. Mollenkopf appeared resigned to Qualcomm’s lack of options with China’s review. “We can only influence so much,” he said.
But the chief executive, a company veteran who took the top job in 2014, also struck an optimistic tone, arguing that Qualcomm can prosper without NXP because “we have a good technology road map.”
“That technology road map is going to be valuable regardless of whatever the outcome is with NXP,” Mollenkopf said.
The heart of that road map is 5G, industry shorthand for a next generation of ultrafast global cellular networks that Qualcomm has been helping to develop. Mollenkopf predicts 5G will take his company be- yond its stronghold in smartphones. And since signing the deal for NXP, Qualcomm has made progress on its own in diversifying its business by selling more chips into cars, he added, with its backlog of chip orders from the auto industry recently totalling $4 billion. In addition, Mollenkopf said, if the NXP deal does not go through, Qualcomm plans a stock buyback of $20 billion to $30 billion to help lift its stock price.
Stacy Rasgon, an analyst with Sanford Bernstein, said Qualcomm’s political stalemate with China and the question of whether the company could integrate NXP effectively had led some investors to prefer a buyback. “People just want certainty, one way or another,” he said.
The fallout from the trade war is the latest challenge for Mollenkopf, who has been on the hot seat for much of his tenure as chief executive. Qualcomm has been hurt by slower sales of smartphones, while an unusual business model that combines patent licensing with chip sales has prompted antitrust squabbles on three continents.
More recently, after the Trump administration blocked the Broadcom bid, White House actions have been problematic for Qualcomm. In April, the administration issued an order preventing U.S. companies from selling components to China’s ZTE after finding that ZTE violated U.S. sanctions involving North Korea and Iran. ZTE is a major Qualcomm customer.
Trump later softened his stance toward ZTE, which agreed to changes. The Commerce Department removed ZTE from a list of proscribed customers on Friday, enabling Qualcomm to resume selling chips to the Chinese company.
It’s unclear if China might now relent on NXP, or keep withholding approval of the deal to push back against the Trump administration’s trade tariffs. “One weapon is obviously the Qualcomm weapon,” said Robert Atkinson, president of the Information Technology and Innovation Foundation, a think tank.
China’s antitrust authority, the State Administration for Market Regulation, did not respond to a request for comment. The country would be the ninth jurisdiction to complete a customary antitrust review of Qualcomm’s NXP deal.