The deal sure looked like a no-brainer without a lot of issues in front of it. I'm talking about Qualcomm's (QCOM) buy of NXP Semiconductors (NXPI) for $110 back on Oct. 27, 2016, before we knew there would be a president named Trump.
In fact, when you go back to when that $47 billion deal was announced you can find nothing that could possibly get in the way of the deal, especially not regulatory approvals. No one asked antitrust worries on the conference call. China's authorities never came up. Yet it now looks like the deal might be spoiled by the Chinese antitrust issues. Gao Feng, the spokesperson for the Chinese Commerce Ministry, cited "related issues that are hard to resolve, making it difficult to eliminate the negative impact."
I would love to say the announcement from the Chinese regulator could be based on some substance, some fact, except the truth is that when the deal was announced it was all about Qualcomm diversifying away from its core business of telecommunications.
NXP's chief appeal was auto tech, chiefly car entertainment chips, but also all sorts of autonomous driving and radar chips as well as cruise control devices and collision avoidance semis. The combination had so little to do with cellphones that the Qualcomm analysts cheered it as a way to be much less dependent on a market that looked saturated. Given the trepidation about that cellphone growth, something that's front and center today with analyst commentary about the weakness in Apple (AAPL) because of phone fatigue as well as Taiwan Semiconductor's (TSM) statement about "continued weak demand from our mobile sector" when it reported, NXP was the perfect way for Qualcomm to get out of its pigeon hole.
It was a sure winner.
Now I think you could see this one coming, first because of Trump's overt attempt to block the Chinese from stealing U.S. technology. Then, on Monday when U.S. authorities stopped the sale of telco components to Chinese cellphone giant, ZTE, you had to believe that the oft-delayed deal would be spiked.
This deal is luckless. Qualcomm's acquisition had been very well timed as semis were down in the dumps at that moment.
In fact, when they came roaring back, because of renewed demand from Apple and Samsung, Elliott Partners started a campaign against consummation of the deal by arguing that post the rally in all cellphone chips, NXP was worth a lot more than $110.
Qualcomm raised its bid to $127.50 and the dissident non-tenderers relented and applauded the deal.
My take is that this deal, with no overlap, is being used as the first real retaliation against the U.S. tech industry and if it is a prelude to more of them, then we have seen the end of any tech merger involved with semis.
Look out for this. China is flexing its muscles and fighting back.
And Qualcomm? Now it's all about cellphones again, without a doubt the worst thing that could happen to a company, especially in wake of the fact that it turned down the opportunity to sell the company to Broadcom (AVGO) for $29 more than it is trading for if it simply didn't close the NXP deal.
What a disaster.
Now Qualcomm's diversification efforts have failed, failed because of an overlap that really doesn't exist.
The world's changed and changed for the worse for all semis large and small as the opportunities for other semis to diversify now seem dead and the opportunities for smaller semis to get a takeover premium are even more dead.
It's a big turn of events and it makes semis a lot less valuable than they were before today.