Image copyright Qualcomm Image caption Qualcomm has already showcased 1Gbps mobile internet speeds using a 5G chip
US President Donald Trump has blocked a planned takeover of chipmaker Qualcomm by Singapore-based rival Broadcom on grounds of national security.
His order cited "credible evidence" that the proposed $140bn (£100bn) deal "threatens to impair the national security of the US".
There were concerns the takeover could have led to China pulling ahead in the development of 5G wireless technology.
The deal would have been the biggest technology sector takeover on record.
A takeover of Qualcomm by Broadcom would have created the world's third-largest maker of microchips, behind Intel and Samsung.
The chipmaking sector is in a race to develop chips for the latest 5G wireless technology and Qualcomm is considered to be a leader in this field, followed by Broadcom and China's telecoms giant Huawei.
Analysts say Qualcomm is highly regarded for its commitment to research and development (R&D), particularly in the field of 5G technology. Huawei is equally committed to R&D in the area.
However, Broadcom is better known for selling assets and growing through acquisitions, and deemed to be weaker on R&D.
With this in mind, analysts have said a deal between Qualcomm and Broadcom could have given Huawei the chance to take over the top spot in years to come - a situation US politicians wanted to prevent given their ongoing security concerns around Chinese telecom firms doing business with US carriers.
Image copyright Qualcomm
Others have said Mr Trump's decision was more about competitiveness than security concerns.
"Given the current political climate in the US and other regions around the world, everyone is taking a more conservative view on mergers and acquisitions and protecting their own domains," said Mario Morales, vice president of enabling technologies and semiconductors at global research firm IDC.
"We are all at the start of a race, and you have 5G as a crown jewel that everyone wants to participate in - and every region is racing towards that," he told the BBC.
"Semiconductor technology and companies like Qualcomm will be an important weapon in that 5G arms race [and] the US like other nations and regions want to be first."
Broadcom said it was reviewing the order and "strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns".
The company had been pursuing San Diego-based Qualcomm for about four months.
Last week, however, Broadcom's hostile takeover bid was put under investigation by the Committee on Foreign Investment in the US (CFIUS), a multi-agency body led by the US Treasury Department.
The US company had rejected approaches from its rival on the grounds that the offer undervalued the business, and also that any takeover would face antitrust hurdles.
Earlier this year, Chinese telecoms giant Huawei said it had not been able to strike a deal to sell its new smartphone via a US carrier, widely believed to be AT&T.
The US also recently blocked the $1.2bn sale of money transfer firm Moneygram to China's Ant Financial, the digital payments arm of Alibaba.
The government has sent a warning to Broadcom about violations of an order it issued earlier this month in the chipmaker's ongoing attempt to buy Qualcomm.
The Treasury's Committee on Foreign Investment in the United States said Sunday it has confirmed the national security concerns it has raised about the deal and said it would consider further action, including referring the matter to President Donald Trump.
Broadcom is battling for board seats at Qualcomm, which has resisted its hostile takeover attempt. The government has said it is concerned about Qualcomm's ability to maintain a competitive edge over China in mobile network development, citing Broadcom's reputation for cutting research spending.
In response to that claim, Broadcom said earlier this month it is fully cooperating with CFIUS and was "absolutely committed" to making the combined company a leader in 5G technology, the next generation mobile network.
Sunday's letter to lawyers for the two chipmakers said Broadcom violated the government's previous order by making moves to relocate its headquarters to the United States from Singapore without giving CFIUS five days notice, as required. Broadcom made these moves three times, according to the letter, which was reported by CNBC's David Faber on Monday.
The investigation should be ending soon, the CNBC report said. If Broadcom moves its headquarters before the review is over, CFIUS could potentially lose its jurisdiction over the deal.
Broadcom officials are meeting with CFIUS on Monday to tell them why it should not refer the deal to the president to be blocked, CNBC reported.
Shares of Broadcom rose 2.9 percent on Monday, while shares of Qualcomm dipped slightly, down 0.9 percent.
Stepping into the increasingly wild saga that has been Broadcom’s efforts to purchase Qualcomm, the US government is now weighing in by issuing a new order to block the merger of the two companies. Citing national security concerns with the Singapore-based Broadcom acquiring the US-based Qualcomm, President Trump issued an order under the Defense Production Act of 1950 to prohibit the proposed acquisition or any similar transaction, effectively ending Broadcom’s acquisition efforts.
Given what would have potentially been the largest acquisition to date in the technology industry, Broadcom’s acquisition efforts had already attracted the attention of Committee on Foreign Investment in the United States (CFIUS), who was investigating the buyout. However in exercising his own authority based on the CFIUS’s recommendations, the President has blocked the merger on national security grounds, citing that through their ownership of Qualcomm, Broadcom “might take action that threatens to impair the national security of the United States.”
As a result of the presidential order, Broadcom’s purchase efforts are on hold for the time being, if not forever. The order requires the two companies to immediately stop any and all merger activity, and to unwind any efforts they’ve taken thus far, reporting to the CFIUS on their progress. Furthermore the candidates that Broadcom was running for Qualcomm’s board of directors are barred from participating in that election, and Qualcomm cannot accept their nominations.
The President's order does not go into detail about the national security concerns he and the CFIUS have with the potential deal. But the Washington Post, citing a letter from the CFIUS sent to the companies’ attorneys sent over the weekend, notes that “it was concerned research and development at Qualcomm might atrophy under Broadcom's direction” and that Qualcomm rivals such as Huawei “might become much more dominant around the world” as a result.
As the framework blocking the acquisition is a presidential order, it cannot be appealed and this block is seemingly permanent. However as Broadcom has already been going through great lengths to acquire the company, including planning to redomicile to the US so that the acquisition was no longer a foreign deal, it might yet prove too early to rule them out entirely.
President Donald Trump issued an order Monday evening blocking any merger of the chipmaking giants Broadcom and Qualcomm, saying it was necessary to protect national security. There is “credible evidence,” the order says, that if the Singapore-based Broadcom took control of the US-based Qualcomm that the company “might take action that threatens to impair the national security of the United States.”
Broadcom has been trying to purchase Qualcomm for the last several months, but has continually been rebuffed. It’s since tried to stack Qualcomm’s board with friendly members. Trump’s order says that Broadcom will not be allowed to purchase or merge with Qualcomm in any way, and that all of the people Broadcom has proposed to Qualcomm’s board are disqualified.
It seems that Broadcom was aware that Trump or his Justice Department might attempt to block the merger on these grounds and has been trying to avoid it. Trump has blocked similar takeovers before, having stopped a Chinese state-owned company from buying an American semiconductor firm back in September.
Broadcom is currently in the process of moving its headquarters from Singapore to the US, according to Bloomberg, and planned to complete the transition by April 3rd. With the move, Broadcom seems ready to fight Trump’s order. In a statement, the company said “US national security concerns are not a risk to closing, as Broadcom never plans to acquire Qualcomm before it completes redomiciliation.”
It’s not clear whether that’ll be allowed to happen. Trump’s order says that the two companies should “permanently abandon the proposed takeover,” indicating that Broadcom’s move won’t make a difference, unless it’s willing to take the order to court.
