Qualcomm's NXP Deal Flop Leaves Chipmaker With One Less Problem

(Bloomberg) -- Qualcomm Inc.’s Chief Executive Officer Steve Mollenkopf didn’t take long to start arguing his company is fine without the $44 billion deal he’s been trying to close for almost two years. He started pitching Wall Street before the transaction, the biggest in the history of the chip industry, officially died.

The San Diego-based company is on the cusp of profiting from the roll out of new phone networks, he said. It’s also made strides in the automotive market on its own, he added, suggesting it can do without NXP Semiconductors NV, a leader in chips for vehicles that Qualcomm was trying to buy.

Without a clear indication of when, if ever, China might approve the deal, Qualcomm decided to go it alone and formally scrapped the NXP bid on Thursday.

“We are confident in our ability to grow,” Mollenkopf said in an interview. “We didn’t see an end to the process, or near-end end to the process, so we had to move on.”

Qualcomm’s stock rose as much as 5.8 percent in extended trading on Wednesday after a better-that-expected earnings report and a giant new $30 billion share buyback.

The company also felt confident enough to confirm its modems won’t be in Apple Inc.’s new iPhones later this year. Qualcomm booked an unexpected $500 million in licensing revenue from an unidentified customer that had been holding out amid a legal battle with Apple. The payment suggests a resolution of the bitter dispute may be nearer, Qualcomm said.

Mollenkopf may be making progress in chipping away at his mountain of challenges, but there’s a list of outstanding issues that will likely keep a lid on investor optimism. The company is still trapped in a worldwide legal fight with Apple Inc.. That spat is only now just coming to various trial and hearings. It’s part of a broader set of attacks on Qualcomm’s lucrative licensing model and includes regulatory actions on three continents.

Then there’s the prospect of former Qualcomm CEO Paul Jacobs trying to take the company private. Jacobs led Qualcomm during a halcyon period of rapid sales growth and boom profit. Investors yearn for a return to those days, but they’re not hopeful. For now, they’re just relieved that the NXP wait is finally over.

“Have they done enough to convince the industry and the investment community that they can grow? That’s still a very open question,” said Matt Ramsay, an analyst at Cowen Inc. Ending the transaction was a good start because “the one way investor backlash would have happened would have been if they extended the deal again.”

Qualcomm, the world’s biggest maker of mobile-phone chips, pitched the purchase of NXP as a way to jump-start a push into automotive silicon and reduce its reliance on a slowing smartphone market. Qualcomm had originally assured investors that approval would come by the end of 2017. In April, the two companies extended the agreement to Wednesday’s deadline as Qualcomm worked out concessions with China. But the final sign-off never materialized and the deal became entwined in a brewing trade war between the U.S. and China.

That leaves Qualcomm and Mollenkopf with the more prosaic tasks of churning out higher revenue and profit from in-house initiatives, returning cash to shareholders and looking for ways to cut costs.

“They are executing on their cost reduction plans,” said Cowen’s Ramsay. “They’re showing tangible progress there.”

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