Why Trump blocked Qualcomm-Broadcom: It's all about 5G

Emmett Rice
March 15, 2018

Senator Chuck Schumer, the top Democrat in the U.S. Senate, on Tuesday praised President Donald's Trump's decision to block chipmaker Broadcom Ltd's proposed takeover of Qualcomm Inc, calling China's trade practices "rapacious".

The months-long, back-and-forth merger talk between US chipmaker Qualcomm and its Singapore-based peer Broadcom hit an unexpected wall when President Donald Trump issued an executive order to block the deal, saying it would pose threats to national security.

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"Any transaction or other device entered into or employed for the objective of, or with the effect of, avoiding or circumventing this order is prohibited", Trump wrote in the order.

In the executive order, Trump said there is "credible evidence" that led him to believe that Broadcom might "take action that threatens to impair the national security", after reviewing an analysis by the Treasury Department's Committee on Foreign Investment in the U.S. The CFIUS argued that should the merger go through, it would weaken the American company's ability to compete against its Chinese rivals.

Last week, the CFIUS started analyzing the proposed merger, and found serious issues that may hamper the development of next generation wireless technology - 5G - and make the U.S. information grid subject to Chinese spying and sabotage.

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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.

Qualcomm has yet to comment, but will no doubt be cracking open the champagne on the news after rebuffing multiple offers from Broadcom claiming they "undervalue" the company and its "leadership position in mobile technology". CFIUS also said that Broadcom defied an interim order requiring that it give a panel 5 business days' notice before taking steps to officially relocate.

Though Broadcom is based in Singapore, the principal worry rests with China.

A panel that advises the President on business deals that could affect national security, the Committee on Foreign Investment in the USA, also feared the somewhat strong ties between Huawei and Broadcom.

China is said to be the main reason behind Trumps decision, U.S. daily The New York Times said. For one thing, it is only going to become harder for foreign tech companies - not just Chinese - to acquire USA technology businesses as the White House appears receptive to any argument around the diminution of American corporate might.

But there may be more to the decision than just Broadcom. Shares of Intel, a U.S. competitor, also rose. "Better to keep it in American hands and protect American national security", Cotton said.

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