In a dramatic turn of events, regulators of China have reportedly restarted the review process for the proposed merger of Qualcomm Incorporated QCOMwith NXP Semiconductors N.V. NXPIthat was long shelved. The strategic move is expected to ease the trade relationship between the United States and China that seemed to be on the boil due to various restrictions and counter restrictions imposed on each other.
The top administration of China has asked its Ministry of Commerce officials to fast track the review process that was put on hold when domestic companies raised objections to the deal. They argued that the transaction was a potent threat to their survival as the combined entity would extend Qualcomm’s patent licensing business into areas like mobile payments and autonomous driving. The issue became a bone of contention between the two warring countries as China being the largest importer of semiconductors, was aggressively trying to end its dependence on the United States and gain an upper hand.
The issue further spiraled into a full-fledged conflict when the U.S. government banned sale of components by American firms to Chinese telecom equipment maker, ZTE Corp. Citing a breach of an agreement inked last year, the U.S. Department of Commerce slapped a seven-year ban on sale of various components to ZTE after it was caught illegally shipping goods to Iran. This crippled the operations of ZTE and threatened its survival to such an extent that the Chinese officials were forced to make solemn representations to the visiting U.S. delegates to convey its plight. ZTE also formally appealed to the U. S. Commerce Department's Bureau of Industry and Security to suspend the ban on its products.
Although President Trump refused to budge initially, he made a sudden turnabout by acknowledging in a Twitter post that he was working with the Chinese President Xi Jinping to give ZTE “a way to get back into business, fast.” This perhaps tilted the scales in favor of Qualcomm and set the ball rolling to get the approval for its merger with NXP. The transaction, when complete, will position Qualcomm as a strong player in the next-generation mobile chipset segment with a potential market size of $138 billion by 2020.
Qualcomm has underperformed the industryin the past three months with an average loss of 15.4% compared with a decline of 3.3% for the latter. Whether a core business focus can indeed help the company to turn the tables and improve its sagging shares remains to be seen.