BEIJING--China's antitrust regulator gave an initial pessimistic
review of Qualcomm Inc.'s $44 billion purchase of NXP
Semiconductors NV, raising questions about a critical deal for the
American company and whether trade friction with the U.S. is
playing a role.
A spokesman for China's Commerce Ministry said Thursday that a
preliminary review turned up "related issues that are hard to
resolve, making it difficult to eliminate the negative impact."
Speaking at a regular media briefing, the spokesman, Gao Feng,
didn't elaborate on the specific findings other than to say the
agency looked at the deal's impact on competitors and the market
and examined Qualcomm's proposed remedies. He didn't close the door
on an eventual approval, promising a fair review of Qualcomm's
application.
Qualcomm didn't immediately respond to a request for
comment.
Mr. Gao's remarks are the latest move in Qualcomm's long
discussions with Beijing. Still, the bleak initial assessment comes
amid a tumultuous back-and-forth between Washington and Beijing
that is making the technology sector a flashpoint in the countries'
brewing conflict on trade.
Earlier this week, the U.S. banned a large Chinese
telecommunications equipment maker, ZTE Corp., from purchasing
American technology for seven years, saying the company breached an
agreement reached last year to settle allegations it violated
sanctions by selling gear to North Korea and Iran. The punishment
is seen as potentially crippling for ZTE. It is also likely to hurt
its American component suppliers, including Qualcomm, which
provides chips for smartphones.
"China wants very much to flex its muscles. It can certainly
inflict pain on one large U.S. company, Qualcomm," said Peter
Fuhrman, chairman and chief executive officer of investment and
advisory firm China First Capital. He said current tensions make
this "the fraughtest moment in the 30-year history of U.S.-China
technology trade and mutual reliance."
Ultimately, Mr. Fuhrman said, China's huge mobile-phone and auto
industries in particular depend on Qualcomm and NXP, so an
agreement with the regulators is likely to be struck.
Qualcomm has been waiting for China to approve the purchase of
the Dutch company NXP, having secured permission from the eight
other major antitrust regulators around the globe. The deal is seen
as crucial to San Diego-based Qualcomm, which needs to look for
growth beyond its dominance in the smartphone sector; NXP
specializes in making chips for automobiles, an area that is
growing rapidly.
On Wednesday Qualcomm said it began laying off an unspecified
number of employees in a move to fulfill a promise to boost profit
by shedding $1 billion in expenses. The layoffs are part of a
cost-reduction program unveiled in January intended to convince
investors of the company's prospects as it fended off an
acquisition from Broadcom Ltd., which was then based in Singapore,
that was later quashed by President Donald Trump.
In recent weeks as Washington and Beijing have traded
tit-for-tat threats over trade, the Commerce Ministry has slowed
its review of the deal, according to people familiar with the
matter.
At a 45-minute briefing to a crowded room of reporters, Mr. Gao
touched upon ZTE and the trade battle as well as Qualcomm's
application. By going after ZTE, he said, "The action targets
China. However, it will ultimately undermine the U.S. itself." He
said the U.S. is risking "tens of thousands of jobs and shaking
international confidence in the U.S. business environment."
Mr. Gao also urged the U.S. government not to misjudge China's
resolve in defending its interests on trade.
The Trump administration has criticized Beijing over what the
U.S. says are unfair practices leading to a trade imbalance that
last year reached $375 billion in China's favor. The Trump
administration wants the gap reduced by $100 billion and this year
placed tariffs on a range of Chinese goods and threatened to impose
them on $150 billion more.
Beijing has vowed to respond in kind. This week, it placed
temporary penalties on imports of U.S. sorghum, as part of a
strategy to target the Farm Belt and other parts of President
Trump's political base. Soybeans, cotton and liquefied propane are
also on a target list for tariffs.
Washington and Beijing have tussled over technology in recent
years, with both governments alleging that each other's products
might enable espionage and damage national security. Efforts to
harden those perceived vulnerabilities have also fed accusations of
protectionism, and as overall tensions on trade have risen,
technology has taken center stage.
Huawei Technologies Co., a Chinese national champion and the
world's largest provider of telecom equipment, acknowledged this
week that after years of difficulties in the U.S., it is refocusing
energies on most of the rest of the world.
The U.S. Federal Communications Commission approved a measure
this week that would bar wireless carriers in the U.S. from using
government subsidies to buy telecom gear from Chinese
manufacturers. The U.S. trade representative's office also said
earlier this week that it is considering retaliation for China's
restrictions on U.S. providers of cloud computing and other
services.
Qualcomm has been caught in the middle. The company relies on
China for a major part of its business. As the Commerce Ministry's
review of its proposed purchase of NXP, Qualcomm resubmitted its
application on Monday ahead of a Tuesday deadline. The move
effectively resets a timetable for a decision and gives Chinese
regulators an additional 180 days to review the deal, people
familiar with the procedure said.
Lin Zhu and Yoko Kubota in Beijing, and Liza Lin i Shanghai
(END) Dow Jones Newswires
April 19, 2018 04:56 ET (08:56 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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