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$NXPI Qualcomm Deal Collapse Forces NXP to Forge a New Path
Source: Dow Jones News
By Stu Woo
Qualcomm Inc.'s decision to abandon the takeover of NXP Semiconductors NV produced a cash windfall for the Dutch chip maker, but left it scrambling to spell out what its future may hold.
Qualcomm late Wednesday walked away from the $44 billion deal after the Chinese government didn't give its blessing to the takeover amid trade tensions with the U.S.
NXP is due to collect a $2 billion breakup fee, but President and Chief Executive Richard Clemmer on Thursday called the outcome "unfortunate" after such a prolonged process. "We are confident in our future as an independent market leader," he said as the company posted second-quarter results.
The company tried to ease investor anxiety, announcing a $5 billion share buyback.
Its most immediate challenge, though, could be to assure shareholders NXP is a company with a plan.
Since a deal was announced in October 2016, NXP stopped providing financial forecasts and holding quarterly conference calls with analysts. Mr. Clemmer exercised options and sold more than $400 million of NXP shares last autumn when they were trading around $113. On Wednesday, they traded at $98.37.
NXP Chief Financial Officer Daniel Durn left a year ago for the same role at rival semiconductor maker Applied Materials Inc.
"You worry about losing the good people," said Stacy Rasgon, a Bernstein Research analyst, adding that NXP "likely needs a new senior management team."
NXP is planning to brief investors on its second-quarter results Thursday and said it would provide additional detail about its plans at a future meeting with analysts.
NXP, though, must confront the reality that the markets it competes in are changing. Based in a leafy office park in the small city of Eindhoven, Netherlands, NXP is the world's leading maker of chips used in cars, especially for infotainment systems and sensors. It also makes chips for identification and public-transit cards. In 2017, it reported $9.3 billion in sales and a net profit of $2.2 billion.
But the prospect of growing fleets of self-driving cars has driven other chip makers into the automotive sector. Intel Corp. last year agreed to buy Israel's Mobileye NV to expand its expertise in helping self-driving vehicles hit the roads. Samsung Electronics Co. in late 2016 agreed to buy U.S. automotive technology provider Harman International Industries Inc.
NXP could find itself marginalized. "A lot of what they sell are things like sensors and peripherals and infotainment-type stuff, but in the long run, the premise is the car will become more and more like a computer, and NXP doesn't that have expertise today," said Tore Svanberg, a Stifel Nicolaus analyst. He said Qualcomm has that know-how, but not the auto-industry relationships that NXP has, which made the marriage attractive.
NXP declined to comment for this article.
Activist investor Elliott Management Corp. has built up a stake in NXP over the past year and pushed Qualcomm to offer a higher price for the Dutch company, arguing that the takeover target promised strong earnings growth. Elliott couldn't immediately be reached for comment.
The good news for NXP, according to analysts, is that its business is profitable, even without the $2 billion breakup fee. That gives NXP the strength to grow as a stand-alone company while allowing it to consider acquisitions down the road.
"It'll be a perfectly fine stand-alone company," Mr. Rasgon said.
Write to Stu Woo at Stu.Woo@wsj.com
(END) Dow Jones Newswires
July 26, 2018 06:35 ET (10:35 GMT)
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