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Qualcomm 'faces headwinds' and merits an "Underweight" rating, says Morgan Stanley analyst

Ongoing litigation with Apple hangs over the chipmaker through 2019
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The NXP deal has received approval from all necessary global regulators except the Chinese

Qualcomm, the U.S. chipmaker, “faces headwinds” even if its US$44bln takeover of the Chinese company NXP Semiconductors gets approved and deserves an "underweight" rating, wrote James Faucette, a Morgan Stanley analyst in a note.

Hanging over Qualcomm is its ongoing legal battle against Apple, which is unlikely to be finished before 2019. 

Also problematic are the market share gains made by the Taiwanese semiconductor group MediaTek and ZTE Corporation, the Shenzhen-based telecoms group, which “could create added earnings per share headwinds” for Qualcomm,, according to Faucette's note, which was first obtained by, the business website.

READ: Qualcomm Inc slides after Broadcom Limited takeover is blocked

The market has already built in a “meaningful probability” that China will block the proposed acquisition, whereby Qualcomm intends to pay about US$44bln to acquire NXP, according to Faucette’s note.

But Faucette thinks that it is in China’s best interest to approve the deal and he feels that is what will happen.

Qualcomm is set to refile an application with the Chinese government to clear its $44bln takeover of NXP Semiconductors as early as Monday, according to a Reuters report. It will be its second time refiling its antitrust application with China’s Ministry of Commerce.

The chipmaker has gotten approval for the deal from all the necessary global regulators apart from the Chinese.

Sealing its acquisition of NXP – which would mark a watershed moment in the semiconductor sector – is seen as important for Qualcomm which is looking to grow its scale and sell chips to automotive groups.

Qualcomm shares inched up 1.38% to US$55.53 in afternoon trade.


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