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Moody's downgrades Qualcomm, revises NXP outlook on terminated merger

Moody's on July 26 lowered Qualcomm Inc.'s senior unsecured rating to A2 from A1 after the chipmaker scrapped its plan to acquire NXP Semiconductors NV and unveiled a $30 billion share repurchase program.

The downgrade reflects Qualcomm's more limited financial flexibility following the announced share buybacks, and higher financial leverage than before the NXP bid, according to Moody's.

The rating agency also said the termination of the deal could slow Qualcomm's move into adjacent end markets such as automotive and industrial and affect the company's efforts to diversify beyond its core mobile device market.

Still, Moody's projects Qualcomm to maintain strong credit metrics and business portfolio. It also expects the company's liquidity profile to remain robust despite the cash outflows resulting from the buybacks and the $2 billion breakup fee paid to NXP.

The outlook on Qualcomm's rating remains negative due to ongoing intellectual property litigation with Apple Inc., whose contract manufacturers continue to withhold licensing payments to the chipmaker, Moody's said.

"While Qualcomm has sufficient financial flexibility to contend with these disputes, the withheld or partial payments, if sustained, would lead to materially lower profitability and cash flow," the rating agency said.

Separately, Moody's confirmed NXP Semiconductor's senior unsecured rating of Ba2 and changed the outlook to stable from under review.