On Monday evening, President Donald Trump officially blocked Broadcom’s efforts to purchase Qualcomm—he issued an executive order saying that there is “credible evidence” to suggest that the deal “threatens to impair the national security of the United States.”
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 Treasury’s 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 Qualcomm’s 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 Qualcomm’s research and development in favor of short-term profitability—in other words, China can’t be given the opportunity to dominate 5G, Mir suggested.
As Ars reported in November 2017, Qualcomm is best known for its near-monopoly on the high-end smartphone system on a chip [SoC] market, with its “Snapdragon” line of chips. At its heart, any Android phone worth talking about has a Qualcomm SoC, which combines the CPU, GPU, RAM, cellular modem, and other components into a single chip. Qualcomm gained this near-monopoly on the back of its 3G CDMA patents, which Sprint and Verizon rely on for network connectivity.
Non-Qualcomm SoC’s 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.
Back 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.”
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