Deal to buy Qualcomm raises jitters

Qualcomm Technologies Inc has signed memorandums of understanding for sales worth at least $2 billion with top Chinese smartphone vendors and received vocal support from the firms as it fights an unsolicited buyout bid from California-based Broadcom.

Lenovo Group, Guangdong OPPO Mobile Telecommunications Corp, Vivo Communication Technology and Xiaomi Communications have expressed an interest in buying Qualcomm components with a total value of no less than $2 billion over three years, the US chip maker said on Thursday.

The non-binding agreement will be subject to further agreements and covers technology related to RF FrontEnd components, Qualcomm said in a statement.

The companies announced the multi-year agreement at a Qualcomm-hosted event in Beijing attended by the US firm’s chairman and CEO

At the event representatives from the Chinese companies spoke up against Broadcom Inc’s hostile $105 billion bid for Qualcomm , arguing that a combination of the two giant US chipmakers will create a monopoly and stifle innovation. Qualcomm says the bid undervalues it.

They said they were worried that research and development may sputter should Broadcom take control of its target and dominate the market for the wireless semiconductors found in all smartphones.

Android-based Chinese brands rely heavily on Qualcomm chips. Although they pay royalties to the US company on every phone they sell, its heavy investment in wireless technology lowers the innovation that vendors in Android’s ecosystem have to come up with, making it easier to compete with Apple Inc. While the largest Chinese player, Huawei Technologies Co, is starting to develop powerful chips in-house, smaller rivals such as Xiaomi have come to depend on that arrangement.

“The thing we worry about the most is if it were completed, will there be continued investment in the future?” Lin Bin, a Xiaomi co-founder, said at the Qualcomm-sponsored event. “Without the investment, the entire industry will not grow well. So, from this point of view, Xiaomi fully supports Qualcomm.”

A potential merger would likely face regulatory scrutiny in China, where Qualcomm has been fined before over anti-trust issues and where the government is promoting local chip production.

China aims to become a dominant global chip maker by 2030 and has allocated extensive public funding to support local firms.

China is Qualcomm’s second-largest market but will soon become its top market, said the company.