Qualcomm found the villains elsewhere. Not at home. China, the negative environment, and “something that was above us” scuttled its $44 billion bid for NXP Semiconductor, as CEO Steve Mollenkopf reportedly framed it. Blaming someone else was easier than doing a deep dive, but were Qualcomm missteps and misreading of the competitive environment also responsible for the fiasco?

Editor’s Note: AspenCore Media’s editors took a close look at the recent collapse of the Qualcomm–NXP merger deal. Also included in this Special Project are an IoT/automotive market analysis piece by Junko Yoshida (Qualcomm–NXP Break-Up: There Will Be Fallout) and an analysis by Bolaji Ojo ( Lessons from the Broadcom–Qualcomm Debacle ).

It’s a justifiable question. The Qualcomm–NXP trip was an expensive sortie: Qualcomm has paid $2 billion in mandatory break-off fees to NXP, but the bill for the hidden costs may be much higher. For nearly two years, the communications IC and IP supplier and its target endured prolonged uncertainties. Even now, the spasms from customer disruptions remain strong while many employees, though heaving a sigh of relief, must figure out where they truly belong in the enterprise.

Qualcomm is moving on resolutely from the NXP debacle. It must. However, the implications and lessons — if any — are industry-wide. One of the largest acquisitions in the history of the semiconductor industry foundered because of oppositions from various fronts, including customers who might have benefited from it. Simply dumping the blame on nebulous factors and faceless regulators will result in the industry learning nothing from the experience. Perhaps the transaction was destined to fail. Perhaps it could have been better managed and successfully, too. A thorough assessment of why this deal collapsed would offer lessons that can be applied to future deals.

It was a union steeped in controversy from the start. From the moment that Qualcomm announced the offer in October 2016, it faced persistent doubts about the expected benefits: Valuation questions dogged the two entities as NXP’s institutional investors demanded a heftier premium; wary regulators bombarded the buyer with questions, their queries fueled by unease at the prospect of creating another monopoly; and some Qualcomm customers, too, wanted to have a say, seeking a way to whittle down current and prospective royalty payments. In the end, Qualcomm caved, its resolve melting in the face of a deafening Chinese silence.

“The decision for us to move forward without NXP was a difficult one,” said CEO Mollenkopf during a presentation to analysts. “Continued uncertainty overhanging such a large acquisition introduces heightened risk. We weighed that risk against the likelihood of a change in the current geopolitical environment, which we didn’t believe was a high-probability outcome. The 21 months since we announced the NXP acquisition have been volatile.”

Which begs the question: Was Qualcomm’s board of directors oblivious to the enormous challenges that the transaction was bound to face? Also, after securing approvals from regulators in Europe, North America, and several Asian countries, why couldn’t Qualcomm wait for the Chinese to give their verdict? China kept the two parties waiting for more than one year, but it would have had to eventually take a position. So did Qualcomm’s management and board of directors finally figure out what had become obvious to external observers — that closing the deal would require a much higher payout to NXP shareholders?

Lessons (not) learned

There are no signs that Qualcomm will conduct a detailed analysis of why and how the bid unraveled. It is easier — again — to simply toss more money at stakeholders and move on. NXP’s management and shareholders who had tendered their equity could slake their thirst with $2 billion in Qualcomm’s money. But what about Qualcomm’s shareholders? The company offered them an even higher payout. Over the course of the next two years, Qualcomm plans to purchase up to $30 billion of its stocks and retire them, buoying valuation and giving holdouts opportunity for higher dividends someday.

The company wants healing from the fractious transaction by strengthening relations with customers. That won’t be easy. For nearly two years, Qualcomm talked with customers about the benefits, new products, and relationships that they can expect from the combination with NXP. “Scratch all that?” … “Yes, please.” Not an enviable conversation. Qualcomm’s corporate credibility was bound to take a hit. But, like other enterprises that had experienced similar corporate traumas, the company can recover — by presenting alternative deals to customers. Hopefully, it had such backup plans in place.

To move on properly, though, Qualcomm executives need to answer another set of questions about the future. The semiconductor market has seen a raft of acquisition deals in recent years, and Qualcomm has featured in two of the more recent ones. Does it still plan to explore other acquisition deals, or will it lay low for a while, cooling the singed fingers? In other words, does Qualcomm have other companies in its sight? Executive statements following the cancellation of the NXP deal point to a different strategy.

Qualcomm is not looking to ruffle any more regulatory feathers. The company sent strong hints to shareholders that they should not expect any large M&A deals for the foreseeable future. Rather, it will return the $30 billion to investors via an accelerated stock repurchase program. The cash will come from the $36 billion hoard built up over the last years to fund the NXP deal. Qualcomm this week commenced the first tranche of the share repurchase program with an offer to buy $10 billion “of its common stock” by Aug. 27.

If fully subscribed at the high end of the “final purchase price” of $67.50 per share determined by Qualcomm, the transaction would “represent approximately 10.1 percent of our issued and outstanding shares as of July 25, 2018,” said the company in a regulatory filing. It is possible that more than 11% of the company’s outstanding shares could be purchased in this first round, it said.

Conclusion? The first lesson that Qualcomm learned is to take the money and run. After putting shareholders through this grueling uncertainty with the NXP deal, Qualcomm is placating investors by returning cash to them. There’s a second lesson, however. With more than $36 billion in cash and marketable securities at the end of its latest quarter, Qualcomm stands the risk of becoming an acquisition target again. It slipped out of Broadcom’s grasp when the U.S. government intervened and scuttled the $121 billion transaction on the grounds of “national security.”