President Trump nixes Broadcom-Qualcomm deal

The tech industry's cozy ties to China may not last

As we have already told you that Broadcomm has proposed acquisition of Qualcomm. There are also concerns that Broadcom could scale back research and development spending at Qualcomm, given its track record of aggressive cost-cutting.

"Any transaction or other device entered into or employed for the goal of, or with the effect of, avoiding or circumventing this order is prohibited", Trump wrote in the order. CFIUS cited Broadcom's thrifty approach to R&D and argued that the Singapore-based company would likely cut costs at Qualcomm, which would in turn weaken its ability to compete against Chinese telecoms rivals such as Huawei.

"Details of the security risk are likely around 5G cellular technology [where] Qualcomm, in our view, is well ahead of foreign and domestic competitors", said Stifel analyst Kevin E. Cassidy in a report late Monday.

Trump cites subsection 721f of the Defense Production Act of 1950 in the order, but does not specifically refer to how a merger between the two silicon design firms would "impair the national security of the United States".

Credit: Shutterstock In a move that would have sent shockwaves through the technology industry, Broadcom floated the idea of acquiring Qualcomm in a hostile takeover worth $117 billion.

Trumps decision comes after Broadcom said last Friday that it would ask its shareholders to approve its plan to redomicile to the US. Last week, the CFIUS issued an interim order to Qualcomm directing it to postpone its annual stockholders meeting and election of directors by 30 days.

Broadcom chief executive Hock Tan had written to United States policymakers last week to argue that legal claims Qualcomm is facing, alleging abuse of its patents to damage competition, should be seen as a risk to Qualcomm's 5G investment. "These ties were most recently reflected in the agreements Broadcom signed with HBC, Inspur and StarTimes.�China has a finely honed capability to access the technology of companies such as Broadcom, along with that of their subsidiaries and acquisitions", he said. Below we take a look at why the deal fell through and what it could mean for Qualcomm going forward.

Trump disagreed with this line of reasoning, however. As the USA and China maneuver for control over advanced technologies, it seems that the White House has deemed Qualcomm too important to have its R&D potentially slashed by Broadcom. "There is certainly an argument that wireless IP/semiconductors are essential to national security".

"Semiconductor technology and companies like Qualcomm will be an important weapon in that 5G arms race [and] the United States like other nations and regions want to be first", Morales told the BBC.

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