Scuttled Qualcomm-NXP Deal Is a Win-Win for Beijing
26 Julio 2018 - 7:26AM
Noticias Dow Jones
By Dan Strumpf in Hong Kong
By effectively blocking Qualcomm Inc.'s $44 billion acquisition
of NXP Semiconductors, Beijing made two points: It showed it has
weapons beyond tariffs to use in its trade fight with the U.S., and
it checked the advance of a powerful rival in a longer-range battle
for tech supremacy.
Qualcomm has a commanding position in cutting-edge chip
technology, which Beijing has long been seeking to nurture at home.
By failing to approve Qualcomm's purchase of Dutch chip maker NXP
-- thus killing the deal -- Beijing slowed the San Diego-based
company's expansion into new sectors, which could help its own chip
companies as they strive to catch up with foreign rivals, analysts
say.
"Qualcomm has for many years been a real worry of Beijing's, so
it's not surprising -- trade war or no trade war -- that this deal
got scuttled," said Christopher Balding, a longtime China
economist. "To give Qualcomm that much more market dominance across
an even broader range of chips I think was a very worrying
issue."
Qualcomm scrapped its $44 billion purchase of NXP on Wednesday,
hours before the deadline for completing the deal expired. Qualcomm
blamed the stalled approval process on regulators in China, the
last of nine markets needed to sign off on the acquisition.
At a regular news briefing Wednesday, a Chinese Ministry of
Commerce spokesman rejected suggestions that China's inaction was
influenced by the bilateral trade fight.
"As far as I know, the case is a matter of antitrust law
enforcement," the spokesman said. "It has nothing to do with
China-U.S. trade frictions."
But the notion that the Qualcomm-NXP tie-up posed antitrust
issues is far-fetched, since the two companies compete in different
areas of the chip market, according to Mark Li, an analyst at
research firm Bernstein.
"They are in two complementary businesses to start with, so
there is really no strong argument to say they have too high a
market share," Mr. Li said.
People with knowledge of the situation say the rising trade
tensions with the U.S. were the main reason why China didn't
approve the deal by the deadline imposed by Qualcomm.
With President Donald Trump threatening to expand tariffs on
Chinese goods, China can't fight toe-to-toe because it imports far
less from the U.S. But China has other weapons it can use,
including holding up M&A deals involving American firms,
delaying business licenses and increasing inspections of U.S.
products at ports.
In this case, the target was Qualcomm, a U.S. tech powerhouse
that China has long viewed with a wary eye.
In 2015, Qualcomm reached a settlement with Chinese antitrust
authorities that required it to pay a $975 million fine and make
changes to its patent-licensing practices. It is currently mired in
a licensing dispute with handset makers, including Chinese telecom
giant Huawei Technologies Co.
Qualcomm is essential to the modern tech industry, making the
chipsets that power most modern mobile phones, including those made
by China's fast-growing smartphone companies.
It is the dominant U.S. player in helping set standards for
next-generation 5G technology, competing with Huawei and others to
establish 5G protocols.
China was the world's largest semiconductor market last year,
worth $132 billion, according to World Semiconductor Trade
Statistics. But the market is dominated by companies in South
Korea, Japan, Taiwan and the U.S. -- including Qualcomm, which
garnered nearly two-thirds of all its revenue in China last
year.
Seeking to change that, China has been nurturing its homegrown
chip industry, including pouring money into domestic chip
companies. The Journal recently reported that the government backed
China Integrated Circuit Industry Investment Fund Co. was amassing
a new fund of about 300 billion yuan (about $47 billion) to spur
development of its semiconductor industry.
While blocking Qualcomm's acquisition may benefit China's
domestic industry, there were moments when approval looked
likely.
As recently as late May, Chinese regulators were poised to green
light the deal after both sides made significant progress toward
addressing Chinese concerns, and the progress even had the blessing
of China's leadership, according to people familiar with the
matter.
The Trump administration's reversal of penalties on ZTE Corp.
brought Beijing even closer to yes. But the White House decision,
announced at the end of May, to move ahead with tariffs on Chinese
products changed all of that.
--Lingling Wei and Lin Zhu in Beijing contributed to this
article.
Write to Dan Strumpf at daniel.strumpf@wsj.com
(END) Dow Jones Newswires
July 26, 2018 08:11 ET (12:11 GMT)
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