QCOM QUALCOMM Inc

By Yoko Kubota and Dan Strumpf 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 20, 2018).

HONG KONG -- China intensified the tit-for-tat trade battle with the U.S. on Thursday, with antitrust regulators warning that they have "hard to resolve" concerns about Qualcomm Inc.'s planned $44 billion purchase of NXP Semiconductors NV, potentially creating a stumbling block for the deal.

The move follows a decision by the U.S. Commerce Department to ban sales of American components to Chinese telecommunications company ZTE Corp., as well as threats from the White House to impose tariffs on $150 billion worth of Chinese goods to punish what it says are efforts to steal U.S. technology.

The escalating tensions have put technology firms at the center of a trade fight between the U.S. and China, placing new constraints on the companies' strategic plans and threatening their access to giant markets.

"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 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."

Washington has for years warned about China acquiring U.S. technology through unfair means, and protested that Beijing is walling off the world's biggest internet market from American companies. Beijing has in turn vowed to defend its tech champions, fueling a multifront battle that is catching many of world's biggest tech companies in the crossfire. During a visit to China last month, Apple Inc. Chief Executive Tim Cook urged President Donald Trump to support free-trade policies.

Qualcomm's supposed strategic value to the U.S. saved the company from a possible hostile $117 billion takeover last month by Broadcom Ltd., which was based in Singapore but has since changed its domicile to the U.S.

Mr. Trump quashed Broadcom's pursuit of Qualcomm, citing national-security concerns raised by China's growing strength in advanced technologies. These include the fifth-generation wireless technology, known as 5G, that will usher in faster, more powerful connections.

The block put the mobile-chip company firmly at the center of a growing tech rivalry between its home country and its biggest market: China, which accounts for almost two-thirds of Qualcomm's revenue.

China's Commerce Ministry spokesman, Gao Feng, said Thursday a preliminary review of Qualcomm's NXP deal turned up issues that make "it difficult to eliminate the negative impact," but he didn't rule out the possibility of an eventual approval.

Qualcomm said Thursday that it refiled its application with Chinese regulators, and agreed with NXP to extend the deal's deadline by three months to July 25.

Qualcomm has been waiting for Beijing's approval to proceed with the purchase of the Dutch company, having secured permission from the eight other major antitrust regulators around the world. 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, a rapidly growing market.

On Wednesday, Qualcomm said it began laying off an unspecified number of employees 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 persuade investors of the company's prospects as it fended off Broadcom

Mr. Gao also took aim at the seven-year U.S. ban on selling technology to ZTE -- punishment for ZTE breaching a pact reached last year to resolve alleged sanctions violations over the sale of gear to Iran. The ban is seen as potentially crippling for ZTE, which is one of two Chinese companies seeking to take a global lead in establishing 5G mobile internet networks.

"The action targets China," Mr. Gao said. "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."

The interdependence of technology companies across the Pacific means that a tech war isn't a zero-sum game. Qualcomm is one of several U.S. suppliers hurt by the ban on sales to ZTE. The ban potentially covers software such as the Android operating system, developed by Google parent Alphabet Inc., that powers ZTE smartphones. ZTE is working to find ways to preserve its access to Android, according to a person familiar with the matter.

A Google spokesman declined to comment Thursday. ZTE also declined to comment. It is delaying the release of its quarterly earnings report as it wrestles with the implications of the ban.

U.S. punishment of a company seen as a national champion touched off rallying cries for support on Chinese social media, with photos circulating of restaurants and stores displaying signs saying "We are all ZTE people."

Hu Xijin, the editor of nationalistic tabloid Global Times, who has a large social-media following, wrote in a post Wednesday that the ban was an attempt to edge out China in the race to dominate 5G technology.

"Chinese society absolutely needs to support ZTE and back Huawei," Mr. Hu wrote, referring to China's other major telecom-gear maker.

Huawei Technologies Co., the world's largest provider of telecom equipment, acknowledged this week that after years of difficulties in the U.S., it is going to refocus on other markets.

The U.S. Federal Communications Commission approved a measure this week that would bar wireless carriers from using government subsidies to buy telecom gear from Chinese manufacturers. The U.S. Trade Representative's office also said this week it is considering retaliation for China's restrictions on U.S. providers of cloud-computing and other services.

"Everything here is about leverage and China understands its position in that respect very well," said Mark Natkin, managing director of Marbridge Consulting, a Beijing-based telecom, media and technology consulting company. "With tech companies playing an increasingly pivotal role in economic and geopolitical policy, it will be difficult for them not to be drawn into the tensions between the two countries."

--Lin Zhu and Josh Chin in Beijing, Natasha Khan in Hong Kong, Ted Greenwald in San Francisco and Liza Lin in Shanghai contributed to this article.

Write to Yoko Kubota at yoko.kubota@wsj.com and Dan Strumpf at daniel.strumpf@wsj.com

(END) Dow Jones Newswires

April 20, 2018 02:47 ET (06:47 GMT)

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