China to push Qualcomm for more remedies in NXP deal

SAN FRANCISCO: China’s regulators are seeking more protections for local companies before approving Qualcomm Inc’s proposed purchase of NXP Semiconductors NV, according to people familiar with the matter, jeopardising the US chipmaker’s strategy for surviving as an independent company.

China’s Ministry of Commerce isn’t satisfied with the remedies that Qualcomm has offered and has told the US chipmaker to propose more, said the people, who asked not to be identified because the discussions are private.

Many Chinese companies are lobbying the powerful ministry, arguing the deal will hurt them and should be blocked.

They’re particularly concerned the combined entity would extend Qualcomm’s patent licensing business into the areas of mobile payments and parts for autonomous driving systems, the people said.

China, the world’s largest importer of semiconductors, seeks to build a world-class chip industry and further wean the country off a reliance on foreign technology.

The government is said to be raising as much as US$31.5bil to invest in homegrown chip companies. Shares in chipmakers Unigroup Guoxin Co and Shanghai Belling Co climbed as much as 4% before backtracking in the afternoon.

“The news is consistent with China’s supportive policy for local semiconductor players,” said Zhang Haidong, Shanghai-based fund manager with Jinkuang Investment Management.

The move conveys an impression that Beijing “aims to help local companies catch up with their global peers through suppressing the expansion of global competitors.”

Qualcomm and the Ministry of Commerce declined to comment.

Closing the transaction is crucial to Qualcomm’s stand-alone plan after it fought off a hostile takeover bid by Broadcom Ltd that forced its management to give commitments for future business expansion and earnings that it’ll now have to deliver. NXP is essential to Qualcomm’s move to lessen its dependence on a smartphone market that is slowing and where competitors and customers are increasingly fighting to overturn its dominance.

Qualcomm’s largest-ever transaction was announced more than a year ago. The San Diego-based chipmaker had told investors it would be closed by the end of 2017. The process was complicated by Broadcom’s bid for Qualcomm and activist hedge funds who bought NXP stock and forced Qualcomm to raise the offer to US$127.50 a share from the earlier agreed offer of US$110.

That 16% increase was enough to secure support from holders, including activist Elliott Management Corp, of about 28% of NXP’s stock. “The most pressing near-term issue for Qualcomm now is to complete the NXP transaction,” said Chris Caso, an analyst at Raymond James & Co.

It 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. — Bloomberg