Without the blessing of MOFCOM (Ministry of Commerce of the PRoC), Qualcomm (NASDAQ: QCOM) announced after its earnings report that it would drop the NXP Semiconductor buyout (NASDAQ: NXPI). This triggers a $2-billion payout to NXP. What happens next for both companies now that the deal is not proceeding?
Qualcomm’s CEO, Steve Mollenkoph, said on CNBC that it was caught up in a trade war. There is no doubt that China interfered with the deal to get leverage against the U.S. The U.S. already approved ZTE’s settlement, a move that should have followed with China approving the QCOM-NXPI deal. Instead, China did nothing, forcing Qualcomm to cancel the buyout.
Despite the poor management of the QCOM-NXPI deal, QCOM stock rose after its earnings call to above the $60 level. The company even confirmed rumors that Apple would not use its modems in the next product launch. Though QCOM stock is a value play, the risk of downside is above average.
NXP Semiconductor’s growth likely stalled due to the company putting plans in place to operate as a subsidiary to Qualcomm. With that deal over, the analog chip giant must now re-accelerate growth in its core business. It could attract a bid from another chip company or even come back to the table with Qualcomm. But China’s feeble attempt to claim that Qualcomm’s proposals to resolve antitrust concerns suggests the two firms will not come back to the negotiating table.
At these levels, NXPI stock has tremendous value.
Disclosure: The author owns shares of NXP Semiconductor.
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