Qualcomm Inc. (QCOM, Financial), a major semiconductor company, said on Thursday that it terminated its merger with NXP Semiconductors NV (NXPI, Financial) and launched a new $30 billion stock repurchase system.
It is a âno dealâ
Qualcomm first announced a definitive agreement to acquire all outstanding shares of NXP for $110 per share in cash on Oct. 27, 2016, representing a total enterprise value of approximately $47 billion. The San Diego-based company mentioned in its fiscal third-quarter earnings release that the merger deal is subject to various closing conditions, including the tender of at least 70% of the receipt of regulatory clearance from the State Administration of Market Regulation from China.
Qualcomm axed its bid for NXP Thursday morning following Chinaâs failure to approve the merger. Per the merger terms, subsidiary Qualcomm River Holdings will pay a $2 billion termination fee to NXP using existing cash and cash equivalents. The subsidiary also terminated its previously announced tender offer.
At market open, shares of NXP tumbled approximately 7% from its previous close of $98.37 on the merger termination.
Company reports strong fiscal third-quarter earnings and business update
Qualcomm CEO Steve Mollenkopf said on Wednesday that results for the quarter ending June 24 exceeded expectations, driven by âsolid execution across the company, including very strong results in [Qualcommâs] licensing business.â The company reported revenues of $5.6 billion, up 4% from the prior-year quarter and approximately $400 million higher than consensus estimates. Adjusted earnings of $1.01 per share exceeded the high end of the guidance by 26 cents and analyst estimates by 30 cents.
Mollenkopf said Thursday morning that managementâs core strategy of driving Qualcommâs technologies remains unchanged. The CEO listed five key areas where the company expects to accelerate expansion and momentum for the balance of fiscal 2018: Internet of Things, Automobile, RFFE, Advanced Compute and Networking. Mollenkopf also said new opportunities in 5G and âthe next wave of cellular technologyâ help increase the companyâs serviceable addressable market to $100 billion by 2020.
Stock rises on strong business outlook and new share repurchase plan
At market open, shares of Qualcomm increased approximately 6% from their previous close of $59.42 on the strong business outlook and new $30 billion share repurchase plan âto deliver significant value to [Qualcommâs] shareholdersâ according to Mollenkopf.
Company still has some red flags
Although the companyâs financial strength and profitability ranks 6 out of 10, GuruFocus lists five severe warning signs for Qualcomm, including contracting profit margins, poor earnings quality and a weak Piotroski F-score of 3.
Gurus with large positions in Qualcomm include PRIMECAP Management (Trades, Portfolio) and the T Rowe Price Equity Income Fund (Trades, Portfolio). During the quarter, T Rowe Price Group Inc. (TROW, Financial) fund manager John Linehan added 40,000 shares of Qualcomm for an average price of $55.78. Steven Romick (Trades, Portfolio), on the other hand, sold his 1,365,211-share stake in the company.
Disclosure: no positions.
