It seems that Broadcom may not be acquiring Qualcomm after all. President Trump has placed an order blocking the takeover, due to some security concerns. Trump has ordered both Qualcomm and Broadcom to abandon the idea of a takeover. Both the chip giants have been asked to offer notification to the CFIUS that the order has been followed in every aspect.
According to President Trump, there are some concerns that the acquisition of Qualcomm by Broadcom could affect the national security of the US. Trump’s blocking order also eliminates all the fifteen directors that Broadcom proposed for Qualcomm.
Qualcomm has been attempting to block the advances of Broadcom for several weeks now and asked the CFIUS to check out the national security risks of such a merger.
CFIUS Security Concerns
The CFIUS (Committee on Foreign Investment US) had sent a letter stating that the proposed takeover could create security risks for the country. According to the CFIUS, if Qualcomm was bought over by Broadcom, it would result in cutting the costs of Qualcomm and it would not be able to compete with Huawei or other Chinese companies. This would result in China dominating the 5G roadmap that enables quicker data transfer and put America at risk.
CFIUS had already sent letters to the lawyers of both the companies concerned, especially regarding Broadcom’s practice of reducing research expenditure, along with some national security problems.
According to CFIUS, Broadcom had also not given any notice before relocating to the United States, as was required by an order stating a requirement of 5 days notice. However, Broadcom stated that it had fully complied with the interim orders. Hock Tan, the CEO of Broadcom Ltd. even met with the US Treasury Dept. to address these security concerns, claiming that the company’s proposed buyout of Qualcomm would actually benefit the US security.
The Real Risk
The real risk, however, seems that Broadcom will reduce investments in the 5G wireless and this will weaken Qualcomm. It will also weaken the position of the US and Huawei will take a leading position, according to a Bernstein chip analyst, named Stacy Rasgon.
There’s also a bigger picture to be seen on Trump’s stand-in blocking the Qualcomm buyout by Broadcom. It’s not just about security or technology. It is very important for Trump to jobs for the US and continues to maintain the leadership of the US in the free world. Trump does not want any competition from the US and wants tech companies in the country to remain strong and not be diluted by a combination of Qualcomm and Broadcom.
However, Broadcom has assured that it would take over Qualcomm by the early part of April this year. This is much ahead of the shareholder vote for the deal concerning around $117. This means that there were no chances of any security concerns over the buyout. Broadcom had previously announced that it would redomicile first and then acquire Qualcomm, so there were no security concerns.