Zacks Investment Research | Apr 19, 2018 05:43AM ET
Qualcomm’s (NASDAQ:QCOM) proposed acquisition of NXP Semiconductor (NASDAQ:NXPI) has hit a roadblock with the Chinese Ministry of Communications (MOFCOM) saying that Qualcomm must make more concessions for local players. Qualcomm resubmitted a revised proposition this week, giving the government another 180 days to decide.
While deteriorating U.S.-China trade relations may be partly responsible for the Chinese government’s apathy, there are other important considerations.
China’s stated goal is to become self-sufficient in chip production and the government also has some ambitious goals in self-driving technology, artificial intelligence and mobile. As a result, it has invested billions of dollars into homegrown companies and the kind of educational institutions that will churn out very high volumes of researchers.
Naturally, the government won’t do anything to upset its plans, and certainly not anything that will strengthen international players vis-a-vis the local players it has so painstakingly grown. So when those local players petition the government that they will be adversely impacted by the deal, especially in the areas of self-driving cars and mobile payments, there’s no way the government won’t take notice.
In Qualcomm’s case, it’s more about fallout with Apple (NASDAQ:AAPL) means a necessarily negative impact.
Qualcomm also has another problem: in defending its stand against Broadcom’s (NASDAQ:AVGO) hostile takeover, the company has touted its 5G strength and growth prospects resulting from the NXP acquisition . Now if the deal doesn’t go through as planned, investors might actually go ahead and replace the board as Broadcom threatened to do earlier. So for Qualcomm it’s an existential issue.
The Chinese government is likely to take its time and whether or not the deal goes through as planned by yearend depends entirely on the concessions Qualcomm has agreed to this time.
Qualcomm and Broadcom have a Zacks Rank #3 (Hold) while NXP has a Zacks Rank #4 (Sell). So it’s better to take a look at instead.
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