QCOM QUALCOMM Inc

By Stu Woo 

NXP Semiconductors NV Chief Executive Rick Clemmer got the text message at 8:30 p.m. Wednesday. It was Qualcomm Inc. CEO Steve Mollenkopf, thanking him for working together even though the chip maker was about to abandon its nearly two-year-old, $44 billion bid to buy NXP.

Mr. Clemmer didn't respond until 12:01 a.m. He had a smidgen of hope that Chinese regulators would approve the merger by the midnight Eastern time deadline Qualcomm had set.

The green light never came. Now Mr. Clemmer must plot a new future for NXP, a Dutch business that makes computer chips for automobiles, as a stand-alone company.

"We were prepared for this," Mr. Clemmer said in an interview Thursday. "We were very confident about the transaction closing until a few months ago. We realized it was a flip of a coin."

The companies announced their deal in October 2016, but it became entangled in the U.S.-China trade feud. NXP's consolation was a $2 billion breakup fee, which it had received by Thursday morning.

It will use the funds quickly. To ease investor anxiety, NXP on Thursday announced a $5 billion share buyback.

The most immediate challenge, though, could be to assure shareholders that NXP has a plan on what it does next. Mr. Clemmer said NXP missed out on potential business opportunities during the 21-month limbo, and analysts worry whether the company's senior management is engaged.

Mr. Clemmer exercised options and sold more than $400 million of NXP shares last autumn when they were trading around $113. On Thursday, the stock traded around $91. NXP Chief Financial Officer Daniel Durn left a year ago for the same role at rival semiconductor maker Applied Materials Inc. NXP brought back a previous CFO as a replacement.

"You worry about losing the good people," said Stacy Rasgon, an analyst at Bernstein, adding that NXP "likely needs a new senior management team."

In a conference call with analysts Thursday, Mr. Clemmer said he and his team were fully engaged. He said NXP has plenty of room to grow, but didn't answer some specific questions. "You have to give us time," he said. His most definitive pronouncement was that NXP would focus on its business. "I don't think you'll see us try to do any big merger," he said.

NXP must also confront the reality that the markets it competes in are changing. Based in a leafy office park in the small city of Eindhoven in the Netherlands, NXP is a leading maker of chips used in cars, especially for infotainment systems and sensors.

It also makes chips for identification and public-transit cards. On Thursday, NXP reported a 10% rise in second-quarter profit to $54 million, compared with the same period last year, on revenue up 1% at $2.3 billion.

However, competition to supply the automotive sector with chips is increasing. Intel Corp. last year agreed to buy Israel's Mobileye NV to boost its expertise in self-driving vehicles, while 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.

Mr. Clemmer told analysts Thursday that NXP could still partner with Qualcomm.

Mr. Clemmer said he and his finance chief spent Wednesday at NXP's Austin, Texas, office to be in the same time zone as many of its investors. Mr. Clemmer received the text from Qualcomm's Mr. Mollenkopf after the California-based company said in the late afternoon that it planned to abandon the bid by midnight, barring 11th-hour Chinese approval.

In the evening, Mr. Clemmer said he spoke to the sales team in Austin about how to keep customers who were excited about the Qualcomm deal happy. Then shortly after midnight, when the deal was officially abandoned, he responded to Mr. Mollenkopf.

"Many thanks for the kind words," he wrote. "I'm sorry that we didn't have a chance to work together."

Write to Stu Woo at Stu.Woo@wsj.com

(END) Dow Jones Newswires

July 26, 2018 12:54 ET (16:54 GMT)

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