BEIJING—China’s antitrust regulator gave an initial pessimistic review of Qualcomm Inc.’s $44 billion purchase of NXP Semiconductors NXPI -0.15% NV, raising questions about a critical deal for the American company and whether trade friction with the U.S. is playing a role.
A spokesman for China’s Commerce Ministry said Thursday that a preliminary review turned up “related issues that are hard to resolve, making it difficult to eliminate the negative impact.”
Speaking at a regular media briefing, the spokesman, Gao Feng, didn’t elaborate on the specific findings other than to say the agency looked at the deal’s impact on competitors and the market and examined Qualcomm’s QCOM -0.22% proposed remedies. He didn’t close the door on an eventual approval, promising a fair review of Qualcomm’s application.
Qualcomm didn’t immediately respond to a request for comment.
Mr. Gao’s remarks are the latest move in Qualcomm’s long discussions with Beijing. Still, the bleak initial assessment comes amid a tumultuous back-and-forth between Washington and Beijing that is making the technology sector a flashpoint in the countries’ brewing conflict on trade.
Earlier this week, the U.S. banned a large Chinese telecommunications equipment maker, ZTE Corp. , from purchasing American technology for seven years, saying the company breached an agreement reached last year to settle allegations it violated sanctions by selling gear to North Korea and Iran. The punishment is seen as potentially crippling for ZTE. It is also likely to hurt its American component suppliers, including Qualcomm, which provides chips for smartphones.
“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 officer 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.”
Ultimately, Mr. Fuhrman said, China’s huge mobile-phone and auto industries in particular depend on Qualcomm and NXP, so an agreement with the regulators is likely to be struck.
Qualcomm has been waiting for China to approve the purchase of the Dutch company NXP, having secured permission from the eight other major antitrust regulators around the globe. 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, an area that is growing rapidly.
On Wednesday Qualcomm said it began laying off an unspecified number of employees in a move 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 convince investors of the company’s prospects as it fended off an acquisition from Broadcom Ltd. , which was then based in Singapore, that was later quashed by President Donald Trump.
In recent weeks as Washington and Beijing have traded tit-for-tat threats over trade, the Commerce Ministry has slowed its review of the deal, according to people familiar with the matter.
‘China wants very much to flex its muscles. It can certainly inflict pain on one large U.S. company, Qualcomm.’
At a 45-minute briefing to a crowded room of reporters, Mr. Gao touched upon ZTE and the trade battle as well as Qualcomm’s application. By going after ZTE, he said, “The action targets China. 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.”
Mr. Gao also urged the U.S. government not to misjudge China’s resolve in defending its interests on trade.
The Trump administration has criticized Beijing over what the U.S. says are unfair practices leading to a trade imbalance that last year reached $375 billion in China’s favor. The Trump administration wants the gap reduced by $100 billion and this year placed tariffs on a range of Chinese goods and threatened to impose them on $150 billion more.
Beijing has vowed to respond in kind. This week, it placed temporary penalties on imports of U.S. sorghum, as part of a strategy to target the Farm Belt and other parts of President Trump’s political base. Soybeans, cotton and liquefied propane are also on a target list for tariffs.
Washington and Beijing have tussled over technology in recent years, with both governments alleging that each other’s products might enable espionage and damage national security. Efforts to harden those perceived vulnerabilities have also fed accusations of protectionism, and as overall tensions on trade have risen, technology has taken center stage.
Huawei Technologies Co., a Chinese national champion and the world’s largest provider of telecom equipment, acknowledged this week that after years of difficulties in the U.S., it is refocusing energies on most of the rest of the world.
The U.S. Federal Communications Commission approved a measure this week that would bar wireless carriers in the U.S. from using government subsidies to buy telecom gear from Chinese manufacturers. The U.S. trade representative’s office also said earlier this week that it is considering retaliation for China’s restrictions on U.S. providers of cloud computing and other services.
Qualcomm has been caught in the middle. The company relies on China for a major part of its business. As the Commerce Ministry’s review of its proposed purchase of NXP, Qualcomm resubmitted its application on Monday ahead of a Tuesday deadline. The move effectively resets a timetable for a decision and gives Chinese regulators an additional 180 days to review the deal, people familiar with the procedure said.
—Lin Zhu and Yoko Kubota in Beijing, and Liza Lin i Shanghai