Qualcomm’s deal for NXP Semiconductors turned heads for its $47 billion price tag, but now antitrust authorities in Europe are subjecting the deal to greater scrutiny, which could draw out the approval process.
On Friday, European Union regulators opened an investigation into the chip industry’s largest-ever deal, citing concerns that the acquisition would raise prices and squeeze rivals out of the market for smartphone and automotive chips, as well as electronics used in connected sensors.
Qualcomm – the world’s largest maker of smartphone chips – bought NXP last year to muscle into the Internet of Things, including cars and factory equipment. Steve Mollenkopf, Qualcomm’s chief, explained that its wireless modems and low-power processors would dovetail nicely with NXP’s mixed-signal chips for thermostats to traffic lights.
NXP, which is based in Eindhoven, the Netherlands, is one of the pacemakers in automotive chips, earning billions every year from microcontrollers used in everything from windshield wipers and braking systems to sensor fusion and wireless connectivity. It also sells near-field communication chips that allow smartphones to act like electronic wallets.
“We use our electronic devices every day – mobile phones or tablets. As semiconductors are used in practically every electronic device, we are dependent on them in those devices,” said Margrethe Vestager, the European Union’s competition commissioner, in a statement.
“With this investigation, we want to ensure that consumers will continue to benefit from secure and innovative products at competitive prices,” said Vestager, who has brawled with Apple over paying higher taxes, sued Qualcomm for its licensing business, and opened an antitrust case against Google.
The investigation’s impact remains to be seen, but other changes might already be underway. Last week, Bloomberg reported that NXP investors want to persuade Qualcomm to pay more than it originally offered for the business. Electronic Design could not independently confirm the report.
NXP is the world’s largest maker of automotive chips – success that its rivals are eagerly trying to recreate with autonomous driving and infotainment hardware. Semicast, a semiconductor research firm, estimates that the automotive chip market will earn $43 billion in 2023, up from $30 billion in 2016.
Europe’s investigation comes after United States regulators gave Qualcomm the green light in April. Earlier this month, European officials said that Qualcomm had not offered any concessions to allay potential antitrust concerns. The deal has still to pass China's regulatory gatekeepers.
The investigation could throw a wrench into the complex completion process. Qualcomm could argue to regulators that the deal is not cutting into competition. But if regulators are unconvinced, the San Diego-based company might have to sell businesses or offer other concessions.
In a statement, the European Commission expressed concerns that Qualcomm would bundle its wireless hardware with NXP’s communication and security chips. The argument goes that bundling those technologies, which are all vital for the Internet of Things, could give Qualcomm an unfair advantage over rivals.
The deal could also take heat for Qualcomm’s oft-maligned licensing business, in which it sells access to industry standard 3G and 4G patents. Europe’s regulator is concerned that the company could bundle NXP’s intellectual property with its own patents, charging higher royalty rates and preventing rivals from paying for NXP’s technology.
The investigators might have specific technologies in mind. This month, Reuters reported that regulators were concerned that Qualcomm’s acquisition would make it harder for companies to license NXP's MiFare chips, widely used in access cards for buildings and public transportation.
While NXP’s patents could inject new moneymakers into Qualcomm’s licensing business, companies might have to license patents that it does not need in order to gain rights to technology like MiFare. Qualcomm said that it bought NXP in part for its sales channels in automotive and connected devices.
Similar worries have chase Qualcomm into courtrooms around the world. The company is facing allegations in South Korea, Taiwan, the United States and Europe that its licensing business weakened competitors by refusing to sell them patent rights and holding its chip supply hostage to extract better licensing deals with smartphone makers.
According to the research firm Tech Insights, Qualcomm held 20,143 patents last year in the United States to NXP’s 7,325. While NXP has largely focused on patents in process, packaging, and circuit technologies, Qualcomm holds patents for industry standard wireless systems.
That will allow Qualcomm “to look for potential licensees that they may not have been able to consider with their existing portfolio.”
Licensing patents is Qualcomm’s most lucrative business. Last year, the unit accounted for almost a third of the company’s $23.6 billion in revenue. That $7.7 billion was almost all profit: $6.5 billion before taxes, in contrast to the $1.8 billion reaped by Qualcomm’s semiconductor unit.
The investigation will also probe how the deal could affect the automotive chip market. In particular, the regulators are concerned that Qualcomm’s newfound position in vehicle-to-everything (V2X) technology will unfairly hurt competition. NXP’s chips also enable trucks to drive autonomously in highway conga lines – also known as platooning.
The investigation could foreshadow other stumbling blocks with Mofcom, China’s antitrust regulator. With ambitions to expand its domestic chip industry, Beijing could require Qualcomm to divest business units to Chinese firms as a clearance condition, according to a report from The Capital Forum.
The investigation will last until October 17th the latest, the European Commission said in a statement. Qualcomm has said that it would complete the deal by the end of this year.