China Blocks Qualcomm’s Attempt to Buy a Dutch Chipmaker

President Donald Trump trumpeted a deal Wednesday between the US and the European Union to resolve a trade controversy for the two economic powers. But as crisis is abated on one front of Trump’s trade wars, another rages on. Qualcomm said it will abandon its $38 billion bid for Dutch chipmaker NXP and pay NXP a $2 billion termination fee, after failing to secure approval for the deal from the Chinese government.

While tariffs get most of the attention, the scuttled Qualcomm deal highlights an underappreciated aspect of global trade tension. The Trump administration has blocked attempts by Chinese companies to acquire US companies, and has taken steps to hinder Chinese telecommunications firms like Huawei and ZTE. China, meanwhile, is increasingly cracking down on US businesses.

China didn’t outright block Qualcomm from acquiring NXP. But the two had set today as a deadline for the merger—and they needed approval from Chinese antitrust authorities, since each company does significant business in China. Barring any last-minute action, China essentially ran out the clock, forcing Qualcomm to pay the termination fee. In addition, Qualcomm said it plans to buy back $30 billion worth of stock.

The end of the deal could be a big setback for Qualcomm, which had hoped that the NXP deal would reduce its reliance on licensing chip designs for smartphones. “The deal was mainly to expand Qualcomm into new markets, particularly automotive,” says semiconductor industry analyst Linley Gwennap. “Without NXP, Qualcomm will still be very strong in smartphones, but it will need to find a new growth strategy. Without Qualcomm, NXP will still be strong in automotive, but it will still have a lot of debt.”

China also recently blocked some sales in the country by US memory chipmaker Micron, though the company told CNBC the ban would only affect “slightly more than 1 percent” of its annual sales.

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China’s moves echo some of the US’s own actions. The Committee on Foreign Investment in the United States, or CFIUS, blocked a firm with reported ties to the Chinese government from buying Lattice Semiconductor, and stopped an affiliate of Alibaba from acquiring the money-transfer service MoneyGram. The agency also scuttled Singapore-based Broadcom’s proposed takeover of Qualcomm, even though Broadcom promised to relocate to the US, over fears that the deal would weaken the US semiconductor industry. Even more M&A could be blocked in the near future if Congress passes a bill expanding the CFIUS’s authority.

Meanwhile, Congress threatened to reimpose sanctions that would have prevented US companies from selling components and software to Chinese telecommunications giant ZTE, though lawmakers recently have reversed course.

“There was some speculation that China would approve the Qualcomm deal in exchange for the US commuting ZTE’s death sentence, but apparently there was no quid pro quo,” Gwennap says. “I’m surprised that the president of the United States was more concerned with saving a Chinese company than with helping Qualcomm.”

China has reasons to hobble the US semiconductor industry beyond a tit-for-tat trade dispute. The country, which imports about half of its microchips chips from US companies, is trying to become a player in the global semiconductor industry—including through a $20 billion government controlled fund.

Last year, Chinese smartphone giant Xiaomi started selling a line of smartphones powered by its own Surge chips, in place of some from Qualcomm. Xiaomi still uses Qualcomm processors in other phones, but the Surge phones represent an early step toward the company—and for China—easing its dependence on foreign-made chips.

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