Qualcomm Deal Collapse Forces NXP to Forge a New Path
26 Luglio 2018 - 12:50PM
Dow Jones News
By Stu Woo
Qualcomm Inc.'s decision to abandon the takeover of NXP
Semiconductors NV produced a cash windfall for the Dutch chip
maker, but left it scrambling to spell out what its future may
hold.
Qualcomm late Wednesday walked away from the $44 billion deal
after the Chinese government didn't give its blessing to the
takeover amid trade tensions with the U.S.
NXP is due to collect a $2 billion breakup fee, but President
and Chief Executive Richard Clemmer on Thursday called the outcome
"unfortunate" after such a prolonged process. "We are confident in
our future as an independent market leader," he said as the company
posted second-quarter results.
The company tried to ease investor anxiety, announcing a $5
billion share buyback.
Its most immediate challenge, though, could be to assure
shareholders NXP is a company with a plan.
Since a deal was announced in October 2016, NXP stopped
providing financial forecasts and holding quarterly conference
calls with analysts. Mr. Clemmer exercised options and sold more
than $400 million of NXP shares last autumn when they were trading
around $113. On Wednesday, they traded at $98.37.
NXP Chief Financial Officer Daniel Durn left a year ago for the
same role at rival semiconductor maker Applied Materials Inc.
"You worry about losing the good people," said Stacy Rasgon, a
Bernstein Research analyst, adding that NXP "likely needs a new
senior management team."
NXP is planning to brief investors on its second-quarter results
Thursday and said it would provide additional detail about its
plans at a future meeting with analysts.
NXP, though, must confront the reality that the markets it
competes in are changing. Based in a leafy office park in the small
city of Eindhoven, Netherlands, NXP is the world's leading maker of
chips used in cars, especially for infotainment systems and
sensors. It also makes chips for identification and public-transit
cards. In 2017, it reported $9.3 billion in sales and a net profit
of $2.2 billion.
But the prospect of growing fleets of self-driving cars has
driven other chip makers into the automotive sector. Intel Corp.
last year agreed to buy Israel's Mobileye NV to expand its
expertise in helping self-driving vehicles hit the roads. Samsung
Electronics Co. in late 2016 agreed to buy U.S. automotive
technology provider Harman International Industries Inc.
NXP could find itself marginalized. "A lot of what they sell are
things like sensors and peripherals and infotainment-type stuff,
but in the long run, the premise is the car will become more and
more like a computer, and NXP doesn't that have expertise today,"
said Tore Svanberg, a Stifel Nicolaus analyst. He said Qualcomm has
that know-how, but not the auto-industry relationships that NXP
has, which made the marriage attractive.
NXP declined to comment for this article.
Activist investor Elliott Management Corp. has built up a stake
in NXP over the past year and pushed Qualcomm to offer a higher
price for the Dutch company, arguing that the takeover target
promised strong earnings growth. Elliott couldn't immediately be
reached for comment.
The good news for NXP, according to analysts, is that its
business is profitable, even without the $2 billion breakup fee.
That gives NXP the strength to grow as a stand-alone company while
allowing it to consider acquisitions down the road.
"It'll be a perfectly fine stand-alone company," Mr. Rasgon
said.
Write to Stu Woo at Stu.Woo@wsj.com
(END) Dow Jones Newswires
July 26, 2018 06:35 ET (10:35 GMT)
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