SAN DIEGO — A $44 billion tech deal just became the latest casualty in the escalating US-China trade tensions.
Qualcomm had been waiting nearly two years for its purchase of Dutch chipmaker NXP to clear global regulatory hurdles. The massive deal, first announced in October 2016, had been approved by regulators in eight other jurisdictions, including the European Union and South Korea. China was the lone holdout.
The final deadline for the agreement was midday Thursday in China — and Beijing’s Ministry of Commerce simply let the clock run out.
Qualcomm had warned investors that this would likely happen. CEO Steve Mollenkopf said during an earnings call Wednesday that if China failed to approve Qualcomm’s deal with NXP, the company would walk away from it.
Continued uncertainty surrounding such a large deal “introduces heightened risk,” Mollenkopf said. “We weigh that 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.”
The San Diego-based company, which employs more than 33,000 people, is now stuck with paying NXP a $2 billion breakup fee.
NXP did not immediately respond to a request for comment outside of business hours.
This is just the latest blow for Qualcomm, which has in recent months found its business dealings tied to broader trade negotiations between the United States and China. The tech industry has become a key battleground in the trade fight between the world’s two largest economies.
In March, President Donald Trump blocked a $117 billion takeover of Qualcomm by rival Broadcom, arguing that it could help China beat the United States in developing 5G technology.
The following month, the Trump administration imposed a crippling ban on Chinese smartphone and telecommunications company ZTE, preventing it from buying crucial parts from American companies.
The ban was a one-two punch for Qualcomm: As a major supplier of chips for ZTE’s smartphones, Qualcomm lost a significant amount of business during the three-month ban, and then its merger with NXP became tied up in the fate of ZTE’s survival.
After the US government struck a new deal allowing ZTE to resume business with American companies, there was hope that Beijing would approve the Qualcomm-NXP deal.
But then the United States imposed tariffs on Chinese goods worth $34 billion last month, citing alleged Chinese theft of US intellectual property as justification. China responded in kind. President Donald Trump then threatened to target an additional $200 billion worth of Chinese products.
China is also keen to develop a competitive chip industry and decrease its reliance on foreign chip suppliers.
The Qualcomm-NXP deal would have helped the United States expand its influence in the global chip industry and “bring negative impacts on a wide range of industries in China,” said JH Lin, an analyst with research firm Trend Force.
Qualcomm would have also strengthened its technological know how, which “would be a huge challenge or even risk for Chinese chipmakers and the domestic semiconductor industry of China,” Lin added.