Published: Wed, March 14, 2018
Markets | By Josh Butler

Trump's Message With Broadcom Block: US Tech Not for Sale

Trump's Message With Broadcom Block: US Tech Not for Sale

Then overnight, Mr Trump cited national security in choosing to block Singapore-based chipmaker Broadcom's $117bn takeover bid for U.S. rival Qualcomm, even though a deal had yet to be reached.

Well, now it doesn't need to bother, thanks to an even bigger fish: Citing national security concerns, the president of the United States has signed an executive order blocking the acquisition. Besides banning the deal, it also disqualifies all of Broadcom's director nominees from being elected as Qualcomm's directors.

"The president's action not only banned the (Broadcom-Qualcomm) deal, but restricted 'any substantially equivalent merger, acquisition, or takeover, '" Ellis said. The San Diego, California-based company, the world's largest maker of chips for phones (if you own a high-end Android phone, it's likely using a Qualcomm processor), owns a number of the technologies that served as the foundation for 3G and 4G technology, and it's been pouring R&D dollars into 5G.

Back in November 2017, HEXUS reported upon Broadcom's $130bn offer for Qualcomm.

The move by Trump to kill the deal comes only months after the USA president himself stood next to Broadcom Chief Executive Hock Tan at the White House, announcing the company's decision to move its headquarters to the United States and calling it "one of the really great, great companies".

CFIUS likely had China concerns, possible Broadcom's relationship with entities there or the fact that the only company other than Qualcomm investing heavily in long-term mobile chip research is Huawei, the analyst speculated.

Trump's order made no mention of China, but an earlier letter from the US Treasury warned that a takeover might hurt US leadership in 5G, or fifth-generation wireless networks now being deployed, and consequently pose a threat to US security. The US government is anxious that Broadcom would slowdown Qualcomm's 5G R&D spending, a move that would solidify Huawei's lead and favor China. The president's move was foreshadowed by the Committee on Foreign Investment in the United States, which was planning on stalling Broadcom's takeover plans on national security grounds.

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On the other side of the table, former CEO Paul Jacobs stepped down from his role as Qualcomm's executive director and took a regular board seat instead.

"Qualcomm has become well-known to, and trusted by, the United States government", said Deputy Assistant Secretary for Investment Security Aimen Mir. "This focused mandate reinforces our commitment to welcoming foreign investment, while at the same time reinforcing our commitment to protecting national security", he added.

The deal had been under scrutiny from regulators and others, and would have seen the Singapore-based Broadcom officially take over the USA -based Qualcomm.

Broadcom has doubled in value since the Avago deal closed in 2016 and is now trading today at $268 per share.

Chip industry analyst Patrick Moorhead said the USA authorities were concerned about Broadcom's ties with Huawei.

USA regulators have in recent weeks expressed concerns that the takeover could cause the United States to fall behind China in the race to develop 5G networks. China has a finely honed capability to access the technology of companies such as Broadcom, along with that of their subsidiaries and acquisitions. The deal would have created a major competitor for the chipmaker.

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