Qualcomm shouldn’t walk away from NXP, Wall Street firm says

Qualcomm reportedly plans to drop its efforts to merge with NXP by July 25. However, the analysts at Wall Street research firm Morgan Stanley are urging the company to ignore that date.

“The July 25th ‘walk date’ set by Qualcomm management made sense to us when the company was trying to help China regulators have a clear view of what was a targeted timeline—and before concerns about trade disputes became prominent,” the analysts wrote in a note to investors today. “But the lengthy review process is likely now impacted by broader trade issues (we think that the deal may actually have been close to gaining final approval right before trade friction flared earlier this year). As such, we think Qualcomm should revise its ‘walk date’ to be indeterminate, and instead be such time when either China actually blocks the deal or it becomes clear that an active NXPI bid is meaningfully hindering Qualcomm’s long-term opportunities.”

Qualcomm has been working to secure approval for its proposed purchase of NXP for two years now, and the transaction only lacks approval from the Chinese government. That approval, however, appears to be caught up in the brewing trade war between the United States and China, and it’s unclear whether the issue will be resolved by Wednesday of next week.

It’s worth noting, however, that some movement appears to be occurring between the United States and China. For example, ZTE has been allowed to resume business with U.S. companies following a government ban on the Chinese supplier that essentially put it out of business.

As the Morgan Stanley analysts argue, NXP remains Qualcomm’s best chance to grow its business beyond phones. Moreover, they warn that Qualcomm’s leadership may feel investors’ wrath if they decide to give up on NXP.

“If Qualcomm chooses to walk from NXP, we believe some shareholders may push for more concrete management changes,” the analysts note.

Qualcomm’s NXP acquisition is one of many factors dragging at the company. The company has found it increasingly difficult to extract patent license agreements from handset makers like Apple—and that situation could become more concerning as the wireless industry heads into 5G deployments.

Indeed, Qualcomm’s troubles have been highlighted by ongoing layoffs at the company’s headquarters and elsewhere.