Qualcomm Likely to End NXP Deal, but Buybacks May Enhance Earnings Potential


The trade war between China and the United States has negatively impacted Qualcomm Inc’s (NASDAQ:QCOM) strategy of acquiring NXP Semiconductors (NASDAQ:NXPI). The reports show that Qualcomm could terminate the offer if Chinese authorities don’t approve the acquisition before July 25th.

Qualcomm CEO Mr. Mollenkopf said, “We had done all it could to convince China to support the $44 billion transactions, which the companies have said will be terminated next Wednesday without regulatory consent.”

Qualcomm has Potential to Grow Anyways

Qualcomm says they are well set to generate sustainable growth in the long-term even without the NXP semiconductor acquisition.

The QCOM management is looking towards the 5G project that it has been helping to develop. CEO Mollenkopf is bullish on the future fundamentals, saying “5G will take his company beyond its stronghold in smartphones.”

Qualcomm has also been actively working on diversifying its portfolio by expanding its market share in automotive markets. The company’s business strategy appears to be working, considering it had an order backlog of $4 billion from the auto industry at the end of the latest quarter, which is likely because automakers have started planning for 5G-enabled cars by 2021.

Share Buybacks May Enhance Earnings Per share

QCOM is planning to repurchase $20 to $30 billion of outstanding stock if the NXP acquisition doesn’t occur next week. Share repurchases often have a positive impact on earnings per share, dividends, and share price.

Besides the new share repurchase program, the company is also working on a $10 billion share buyback program that it had initiated at the beginning of this year.

Short-Term Volatility is Expected

Source: Finviz

Qualcomm shares have been under pressure since the start of this year due to a year-over-year decline in its revenue and earnings. Its shares are down 10% since that of this year. In addition, the company expects a mid-single digit decline in its third-quarter revenues and a double-digit decline in earnings. The termination of the NXP deal could also weigh on traders’ sentiments in the short-term.

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