Last week, Treasury official argued deal would let China dominate 5G development. Had the proposed deal gone through, it would have allowed the Singapore-based Broadcom to purchase the San Diego-based Qualcomm for $117 billion. The hostile takeover also would have been the biggest deal in the history of the tech industry. The order, which did not fully explain on what basis the president made this assessment, suggests that the Trump administration is willing to protect American companies against foreign competitors even more than some had realized. Trump recently ordered that tariffs on imported steel and aluminum be put in place, propping up those American industries. Trump's executive order comes a week after the Department of the Treasurys Committee on Foreign Investment in the United States came to a similar conclusion. In a four-page letter, Aimen N. Mir, Deputy Assistant Secretary for Investment Security, wrote that the national security concerns stem from the fact that: ...a weakening of Qualcomms position would leave an opening for China to expand its influence on the 5G standard-setting process. Chinese companies, including Huawei, have increased their engagement in 5G standardization working groups as part of their efforts to build out a 5G technology. For example, Huawei has increased its expenditures and owns about 10 percent of 5G essential patents. While the United States remains dominant in the standards-setting space currently, China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover. Broadcom is expected to lessen Qualcomms research and development in favor of short-term profitability — in other words, China cant be given the opportunity to dominate 5G, Mir suggested. Non-Qualcomm SoCs usually require a separate modem, which takes up more space in the already tight smartphone design. In short, non-Qualcomm-powered phones are generally inferior and more expensive to make. On November 2, 2017, Broadcom CEO Hock Tan appeared with Trump at the White House and promised to "re-domicile" the company in Delaware. (The company, while officially based in Singapore, is currently co-headquartered in San Jose, California.) "I am American, as are nearly all my direct managers, my board members, and over 90 percent of my shareholders," Tan said. "So today, we are announcing that we are making America home again. Thank you. Our commitment to re-domicile into the United States is a huge reaffirmation to our shareholders, to the 7,500 employees we have across 24 states in America today, that America is once again the best place to lead a business with a global footprint. Thanks to you, Mr. President, business conditions have steadily improved." However, such a move does not appear to have taken place. Adding to the intrigue, last Friday, the Wall Street Journal reported that Intel is interested in buying Broadcom. In a two-sentence statement issued Monday evening after the executive order, Broadcom wrote: "Broadcom is reviewing the order. Broadcom strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns."
It might be over just like that. Broadcom's hopes of acquiring Qualcomm might have been quashed for good. President Trump has issued an order blocking Broadcom's proposed takeover and anything "substantially equivalent" to it over concerns that it might "impair the national security" of the country. The order also disqualifies all 15 of Broadcom's proposed directors for Qualcomm. The move follows a letter from the Committee on Foreign Investment in the US warning the companies that it believed the takeover would pose too great a security risk. If Broadcom bought Qualcomm, CFIUS argued, it would likely cut costs at the American company and weaken its ability to compete against Chinese rivals like Huawei. That, in turn, would let China dominate 5G wireless and leave Americans vulnerable. CFIUS also said that Broadcom defied an interim order requiring that it give a panel 5 business days' notice before it took steps to officially relocate to the US. We've asked both Broadcom and Qualcomm for comment, although Broadcom had previously said it was in "full compliance" with the temporary order. To put it mildly, things aren't looking good for Broadcom. There was a chance it could have escaped CFIUS' scrutiny by claiming that the takeover fell outside of its jurisdiction, but that opportunity is gone now -- as long as Trump's order holds, the deal is off. While Qualcomm isn't likely to complain much given that it repeatedly rejected Broadcom's bids as undervalued, Broadcom now faces the prospect of having to either look at another acquisition target or accept that it will have to tackle 5G by itself. Update: Not surprisingly, Broadcom said it's "reviewing" the order and "strongly disagrees" that its would-be acquisition poses national security risks. Qualcomm noted that it received the Order, and said it will reconvence its annual stockholders meeting on March 23rd.