Cramer: U.S./Chinese Trade Thaw Could Mean 'Game On' for Semiconductor M&A

Tit for tat doesn't have to be a disaster for world trade. Tt for tat can be bountiful, too. I'm talking about the tit for tat going on this weekend.

President Donald Trump tweeted over the weekend that he didn't want to hurt the Chinese economy or cost any jobs by denying China's telco giant ZTE (ZTCOY) access to U.S.-built 5G phone parts, thus shutting the company down. Almost instantly, according to Bloomberg, the Chinese were once again considering approving an attempt by Qualcomm (QCOM) to buy NXP Semiconductor (NXPI) . That's a deal that China's Ministry of Commerce (or MOFCOM) had pretty much deep-sixed in the wake of our government's decision that hurt ZTE.

I think Trump's tweet and MOFCOM's pivot represent the strongest sign that one of the trickier issues of trade -- alleged intellectual property theft -- might be becoming less of a thicket. The two sticking points of U.S.-Chinese trade -- intellectual-property protection and the size of our trade deficit with Beijing -- remain on the table as new trade talks begin this week.

The ZTE case's resolution is incredibly important to these talks, as the Chinese telco is totally dependent on U.S. parts. It will have to shut down if a proposed U.S. seven-year ban on such sales isn't lifted, and that would cost 70,000 people their jobs.

Remember, Chinese trade policy has a two-fold goal -- put as many people to work as possible and, by 2025, be dominant in pretty much every industry the United States currently remains world leader in. ZTE shows the gulf between where China is and where it wants to be.

The NXP/Qualcomm merger has faced a tortuous road ever since April 16, when the U.S. Commerce Department decided ZTE couldn't get American components for seven years because the Chinese firm violated a ban on sending technology goods to Iran. MOFCOM almost instantly delayed its review of Qualcomm's $127.50-a-share bid for NXP, a crucial acquisition that would diversify the telco-chip giant's business to industrial, auto and other Internet-of-Things applications.

Both NXP and Qualcomm have been selling off ever since. Qualcomm's announcement last week of an additional $10 billion stock buyback seemed to put a nail in the coffin of the deal after the Chinese had subtly let it be known that they would delay the review indefinitely.

Chinese regulators have suddenly softened their stance on Qualcomm's proposal to buy NXP Semiconductors.
Chinese regulators have suddenly softened their stance on Qualcomm's proposal to buy NXP Semiconductors.

But now, if the Bloomberg story is correct, it's not only positive for NXP and Qualcomm shareholders, it's great news for what had been the red-hot semiconductor mergers-and-acquisition market. Blockage of the QCOM/NXPI deal and a heavy regulatory hand both here and in China that nixed a bid by Broadcom (AVGO) to buy Qualcomm had marked a high-water mark for the group. Until then, the market had seen most semiconductor stocks as "in play," with multiple buyers looking to diversify away from what's perceived as a slowdown in global cell-phone sales.

Remember, Apple (AAPL) had run because its service-revenue stream made the tech giant part of an elite group of companies. It joined Costco (COST) , Netflix (NFLX) , and SiriusXM (SIRI) , Spotify (SPOT) and Amazon (AMZN) (home of Amazon Prime) as companies that charge you recurring fees that you don't seem to notice or care about. So, Apple's stock no longer represents the tug to the group, and each company has to develop a separate power base away from Cupertino.

And now, you can expect many more M&A deals if the QCOM/NXPI deal goes through and ZTE is allowed to get its parts. Such transactions have basically been on hold because there was no real substantive reason why MOFCOM would block the Qualcomm-NXP tie-up to begin with.

And if it's "game on" for semiconductor M&A, all of the semis are worth more than we thought. That includes companies like Western Digital (WDC) , which is more of a disk-drive maker, but which also has a flash-memory business. Texas Instruments (TXN) might step up to the plate to do some buying.

Of course, everything is opaque when it comes to MOFCOM, so we can't assume anything. But NXPI's stock has recently been an harbinger of the entire M&A tech world. Let's see what happens next.

This column appeared at 7:09 a.m. ET on Real Money, our premium site for active traders. Click here to get great columns like this from Jim Cramer and other experts even earlier each trading day.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long AAPL, AMZN and QCOM.

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