‘Geopolitical Environment’ Doomed Qualcomm's NXP Buy, Says Mollenkopf
Qualcomm’s decision to terminate its $44 billion agreement to buy NXP Semiconductors (see 1807250062) “was a difficult one,” but “continued uncertainty overhanging such a large acquisition introduces heightened risk,” said Qualcomm CEO Steve Mollenkopf on a Wednesday earnings call hours after announcing the decision. Ending the deal triggered Qualcomm’s payment to NXP Thursday of a $2 billion termination fee, said Qualcomm. Its shares closed 7 percent higher Thursday at $63.58, while NXP shares closed 5.7 percent lower at $92.81.
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Mollenkopf and his team "weighed" the heightened risk "against the likelihood of a change in the current geopolitical environment, which we didn't believe was a high probability outcome in the near future,” he said, referring to China’s refusal to grant the NXP buy regulatory approval amid rising trade tensions with the U.S. "In the end," Qualcomm decided walking away from the deal was "the best path forward for our customers, partners, employees and stockholders," said Mollenkopf.
"To say the least," the 21 months since Qualcomm announced the NXP deal "have been volatile," said Mollenkopf. "In spite of all the potential distractions, Qualcomm and NXP leadership remained focused on laying the foundation for the successful integration of our two companies." Qualcomm’s October 2016 “rationale” for wanting to buy NXP was to speed its strategy of “growing into adjacent opportunities” where mobile computing was becoming “ubiquitous,” he said. “This strategy remains unchanged.”
Qualcomm had “very good discussions” about the NXP deal with “regulators worldwide and, in particular, in China,” said Mollenkopf in Q&A. But it was “very clear to us that the macro environment was a very difficult macro environment to get something of this size through,” he said. There was no sign the geopolitical forces working against the deal were “going to change in the future dramatically, particularly in the time window that we saw that we had to really move,” he said.
The company decided to walk away because it needs to focus "on the opportunities that are ahead,” said Mollenkopf. Qualcomm also needs to “provide certainty” to its manufacturing partners, shareholders and employees “as to where we're going,” he said. “We looked at that all together in a big mix and basically decided the right thing to do was to move on.”
Qualcomm thinks the industry's 5G momentum is “accelerating,” said President Cristiano Amon. All of Qualcomm’s Snapdragon 800-series OEM customers are planning to launch 5G smartphones starting late next year, he said. “I think that positions us well.” Amon sees the 5G smartphone rollout as “a significant event" coming "in the later part of 2019," but especially in 2020, he said.
It seems with “every passing week,” carriers worldwide “are announcing an expansion of their 5G rollouts, and we are a partner in nearly all of them,” said Mollenkopf. Qualcomm’s “significant investment in 5G leadership will become even more tangible with the early rollouts and device launches in 2019 along with larger deployments in 2020 and beyond,” he said. Qualcomm's chipsets “are now the leading 5G development platform of choice for operators, infrastructure suppliers and smartphone OEMs,” he said.