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Qualcomm to walk away from NXP deal; Q3 results better than expected

Qualcomm's outlook for the fourth quarter is solid, but the company is likely to give up on its purchase of NXP.

Qualcomm said it will walk away from the NXP purchase when its agreement expires unless there is some new material development in the next few hours. The news comes as Qualcomm reported better-than-expected third quarter results.

The long-running NXP acquisition saga has been hampered by regulators and now is part of an ongoing U.S.-China trade war. Chinese regulators are now holding up the deal. Qualcomm CEO Steve Mollenkopf said in a statement:

We intend to terminate our purchase agreement to acquire NXP when the agreement expires at the end of the day today, pending any new material developments. In addition, as previously indicated, upon termination of the agreement, we intend to pursue a stock repurchase program of up to $30 billion to deliver significant value to our stockholders.

Qualcomm's deadline to complete the NXP purchase is 11:59 p.m. New York time July 25. NXP will get a termination fee of $2 billion from Qualcomm.

The statement gives analysts and investors some much needed clarity on the NXP purchase, which was initially announced in late 2016. While analysts have maintained that Qualcomm's NXP purchase makes sense, it's clear that there has to be some sort of closure either way. Since Qualcomm outlined plans to buy NXP, Donald Trump was elected president, Broadcom tried to buy Qualcomm and a trade war with China was launched.

Fortunately for Qualcomm, its financial results fared well. The company reported earnings of $1.2 billion, or 82 cents a share, on revenue of $5.6 billion, up 6 percent from a year ago. Non-GAAP earnings for the third quarter were $1.01 a share.

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Qualcomm's third quarter non-GAAP earnings were boosted by a $500 million interim licensing agreement. Qualcomm has been in legal battles of licensing with Apple as well as its contract manufacturers. That $500 million interim licensing payment boosted non-GAAP earnings by 26 cents a share and GAAP earnings by 30 cents a share.

Wall Street was expecting Qualcomm to report fiscal third quarter earnings of 71 cents a share on revenue of $5.188 billion.

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