Overshadowing NXP Semiconductors’ (NASDAQ: NXPI) weak first-quarter earnings is the approval from China for Qualcomm’s (NASDAQ: QCOM) joint-venture. NXPI stock fell as low as the $91.50 range last week on Thursday. The bounce at the end of the week is driven on hopes that China will approve its buyout by Qualcomm.
NXP earned $0.17 a share as revenues grew 2.7% to $2.27 billion. The EPS is low because the company spent around $400 million on Plant Property and Amortization. Without it, the operating income of $640 million would not have fallen to $240 million in earnings. Still, the $1.55 a share without the expense is still a poor result.
Overshadowing the weak results are hopes that the QCOM/NXPI deal will get China’s approval. China previously indicated that it is concerned with the buyout. That is code language for the country seeking concessions, including investments in the region, IP considerations, job creation and other partnerships that benefit China’s mobile technology sector.
If Qualcomm does not make changes to the way it does business in China that is favorable for the country, the deal could break down. Although it would owe $2 billion to NXPI, the sharp stock drop to the sub $100 range, compared to the offer of $127.50, would save $8.6 billion in the discount from the buyout price.
Drexel Hamilton offered positive words for NXPI stock. Its analyst said "We believe NXP’s results were solid and consistent with the positive industry trends we’re seeing out of most of the analog group. With the pending acquisition by Qualcomm progressing and the recent selloff in NXP’s shares, we are revising our rating from Hold to Buy and increasing our target price from $110 to $127.50 on optimism of the closure of the merger with Qualcomm."
Speculating the deal goes through would give shareholders a big gain and a share sale of $127.50.
