Qualcomm Says NXP Deal on Track, As it Accelerates in Driverless Tech

By Betsy Morris 

LAGUNA BEACH, Calif. -- Qualcomm Inc. said its $39 billion acquisition of NXP Semiconductors NV is on schedule to close by the end of the year, paving the way for it to be a major player in autonomous driving.

"We are still on track to close this year," Qualcomm Chief Executive Steve Mollenkopf said in an interview on Tuesday at The Wall Street Journal's WSJ D.Live tech conference. When asked about speculation that the company might have to raise its price for NXP, he said: "I don't think there's anything unusual regarding our discussions." He said the company was focused on planning and other aspects of the acquisition.

Since Qualcomm signing the deal for the Dutch semiconductor maker a year ago, NXP's performance has been strong. That prompted New York-based hedge fund Elliott Management Corp., which announced in August it took a 6% stake in NXP, to say that the shares were undervalued and raise questions about the terms of the tie-up.

But Mr. Mollenkopf sounded a rosy note about the deal for the world's largest developer of chips for automobiles and how it will position Qualcomm for the arrival of autonomous vehicles. Mr. Mollenkopf predicted the disruption caused by autonomous vehicles will extend over the next 30 years and be as significant as the smartphone. For all the current hype over autonomous vehicles, "we are just starting to scratch the surface," he says. "The industry isn't thinking far ahead enough in terms of connecting not just to the cloud but to other cars."

He sees a big change in the architecture of the car with systems and subsystems that will connect to each other and to the internet. Qualcomm expects to be a big player, he says.

The shift to driverless technology is welcome for Qualcomm, which is facing an international wave of regulatory and legal challenges to its semiconductor business. Just this month, the chip maker was fined by the Taiwanese government. Apple Inc. earlier this year sued Qualcomm in federal court, arguing it unfairly leverages its near-monopolistic position as a broadband chip maker to charge unreasonably high patent fees.

Mr. Mollenkopf said the dispute is "fundamentally about pricing" -- over the technology that makes the phone the phone. "I think we'll get through it," he said, adding that Qualcomm has a strong relationship with Apple. "For big companies, you sometimes have these disputes but you have a broader relationship."

Still, the dispute has been harmful to Qualcomm. The chip maker collects a royalty of roughly 5% on nearly every smartphone sold world-wide. It says that since its patents relate to cellular devices as a whole -- and not just its chips -- that allows it to charge a percentage of the price of the entire device.

The company's licensees and rivals, though, say Qualcomm's royalty rates are unreasonably high. Apple argues that Qualcomm's practices allow it to benefit from unrelated technologies added to the iPhone. The contract manufacturers who make the iPhone and iPad began withholding Qualcomm's royalty payments for those devices earlier this year.

The withheld payments hit Qualcomm hard in its most recent quarter, triggering a 40% decline in profit from a year earlier. The fight is shaping up to be a multi year battle that has spread to overseas markets, including the United Kingdom, China, Japan and Taiwan.

Write to Betsy Morris at [e-mail]

(END) Dow Jones Newswires

October 17, 2017 20:04 ET (00:04 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.