China set to approve Qualcomm-NXP merger, ZTE to reopen

26/05/2018

 

After significant delay, Chinese regulatory officials have signaled that they are ready to approve U.S. chipmaker Qualcomm’s $47 billion acquisition of NXP, a European semiconductor maker. The news follows on the heels of the Trump administration’s decision to ease sanctions on Chinese telecoms equipment manufacturer ZTE.

 

A team of executives and lawyers for the Southern California chipmaker Qualcomm arrived in Beijing over the weekend to meet officials from China’s commerce and industry ministries, and reportedly hammer out a deal, according to the Financial Times. China’s State Administration for Market Regulation will be holding a meeting over the deal review on Monday.

Beijing is the last party required to approve the deal that would allow Qualcomm to diversify beyond smartphone chips to encompass more internet of things applications. Technode reported it has an interest in expanding in the automotive space.

 

 

Beijing is the last party required to approve the deal that would allow Qualcomm to diversify beyond smartphone chips to encompass more internet of things applications, especially in the automotive space.

 

 

Beijing had halted review of several major global mergers and acquisitions, with a concentration on those in the high-tech and microchip space, including the Qualcomm-NXP deal, which has been pending since October 2016.

Analysts believed China was delaying approval as a passive aggressive bargaining chip in the ongoing trade talks between Washington and Beijing.

But recently China approved a smaller microchip deal between Japan’s Toshiba and a U.S. led firm, signaling it might be ending its quiet protest.

Qualcomm, NXP and Toshiba are not Chinese companies, but antitrust regulators in China maintain a strong influence over the deals.

Chinese antimonopoly officials, much like American and European regulators, can punish foreign companies through fines or other measures if they believe a deal beyond China’s borders give the resulting business too much market power, according to the New York Times.

What changed? 

According to the Financial Times, China demanded that the U.S. revisit its decision to prohibit American companies from selling ZTE parts it needed to build its products as a precondition for continuing talks. Qualcomm was one of the company’s prevented from selling chips to ZTE.

As a result of the sanctions, ZTE announced on May 10 it was halting its major operations. The company employs 75,000 people, and its products are sold around the world.

On May 25, following a Twitter pledge to help ZTE out, Trump scrapped the embargo on the company and instead imposed a $1.3 billion fine and other conditions. ZTE, the fourth most popular smartphone make in the U.S., was originally punished for selling products to Iran and North Korea in violation of U.S. sanctions.

Some see China’s decision to accelerate the review process of the mega-merger between Qualcomm and NXP as a return favor for the ZTE about-face.

 

Potential Effects 

The back-to-back moves could ease tensions in trades talks between China and the U.S. that are right around the corner. Commerce secretary Wilbur Ross is set to lead a delegation to China on June 2 to negotiate the country’s pledge to increase purchases of US agricultural and energy exports.

The so-called trade war between the two countries was paused in late May by U.S. Treasury Secretary Steven Mnuchin after a round of talks between high-level officials on both sides.

 

 

The back-to-back moves could ease tensions in trades talks between China and the U.S. that are right around the corner.

 

 

Also on hold are the $150 billion in tariffs U.S. President Donald Trump had threatened to slap on Chinese imports to prevent the poaching of U.S. intellectual property — one of the administration’s frequent talking points. China under President Xi Jinping had responded to the aggression by turning around and threatening tariffs on $50 billion worth of U.S. farm, chemical and other exports. Those threats are currently off the table as negotiations go forward.

Qualcomm launches AI lab in China 

Qualcomm also announced May 23 that it would be opening an artificial intelligence lab in Beijing. The announcement was seen as a gamble, as the fate over ZTE was still unknown.

Qualcomm has been researching AI technologies at least since 2007, when it started exploring machine learning for computer vision and motion control applications.

Later it expanded to artificial neural networks, primarily deep learning. Aside from developing chips, Qualcomm has also invested in BrainCorp, a company developing software for autonomous commercial robots and acquired Amsterdam-based AI company Scyfer, Technode reported.

 

 

 

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