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."
Analysis: Andrew Walker, BBC economics correspondent
Image copyright Reuters
Is there a pattern emerging in President Trump's use of national security concerns as an international economic weapon?
Perhaps, but his predecessor, Barack Obama did use the issue to block takeovers, including a technology acquisition attempted by a Chinese investment fund.
The would-be acquirer in the current case is not Chinese, but the concern expressed by the Committee on Foreign Investment was about creating space for an increased Chinese presence in 5G wireless technology.
Mr Trump has also invoked security concerns in slapping new tariffs on imported steel and aluminium.
There are plenty of people who don't believe it. The EU's Trade Commissioner Cecilia Malmström called it a "safeguard in disguise" - a response to a surge in imports that affects a country's own industry.
Mr Trump's willingness to grant exemptions, partly on the basis of what he sees as a fair trade relationship with the US, is consistent with the idea that it's not just about security.
Steady pursuit
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 Committee on Foreign Investment in the United States (CFIUS) has blocked Singapore chipmaker Broadcom's $140 billion cash-and-shares hostile bid to take over its American rival Qualcomm. Chaired by Treasury Secretary Steve Mnuchin, CFIUS is an interagency committee that reviews foreign takeovers of U.S. companies. The executive order giving force to the CFIUS decision concluded that the proposed deal "threatens to impair the national security of the United States."
Just how a Singaporean takeover of an American company impairs the national security of the United States was not spelled out. Singapore is an important U.S. economic and security partner. It is home to a major U.S. Navy logistics center and regularly hosts U.S. land, air and naval forces. Though Singapore is not technically a U.S. treaty ally, the security relationship between the U.S. and Singapore is about as close as you can get without an alliance.
Still, Broadcom was taking no chances. Anticipating CFIUS resistance, Broadcom was actually in the process of moving its headquarters back to the United States. Broadcom was founded by UCLA academics in southern California in 1991. It only became a Singaporean company in 2016, after it was purchased by Singapore-based Avago Technologies, which has since taken on the Broadcom name. Broadcom pulled out all the stops to secure a positive CFIUS ruling, praising Trump's tax bill at the White House and promising to inject an additional $1.5 billion into U.S. research and development.
To no avail. Not only did CFIUS find against Broadcom, but President Trump's rejection of the deal was particularly expansive, ordering that Broadcom "shall immediately and permanently abandon the proposed takeover." Barring a miracle, the deal is dead.
It is not at all clear why CFIUS is so alarmed. Qualcomm management fiercely opposed the deal, but that's no surprise. A hostile takeover can overturn years of hard work--and put highly-paid executives out of a job. Anyway, CFIUS is neither a jobs body nor even a competition authority. It is a security committee.
The last high-profile CFIUS ruling, the rejection of Alibaba's $1.2 billion friendly bid for payments provider Moneygram, made complete national security sense: letting a Communist Party-linked Chinese company take control of a chunk of American payments infrastructure, even a small one, would certainly have been risky. But Broadcom is Singaporean, not Chinese, and very American in culture. Most of its executives are either American or at least American-educated. Unless CFIUS has access to intelligence that the rest of us lack, there seems no reason to be suspicious of Broadcom.
More on Forbes: Do 'National Security' Threats Signal The Beginning Of The End For U.S.-China Trade Relations?
Unfortunately, national security decisions like the CFIUS ruling are always opaque, and all we can do is speculate as to the real reasons behind them. Qualcomm is indeed a systemically important telecommunications company. But beyond a vague commitment to keeping American great, it's not clear why an American mobile phone chipmaker can't have strong Singaporean ties (wherever it is technically domiciled). In today's globalized economy, there are two ways to make sure a company doesn't threaten U.S. national security: make sure it has substantial assets in the United States, and make sure a lot of the people running it are loyal to the United States. Broadcom checks both boxes.
China uses security policy to develop its industrial base, most famously with the Great Firewall of China that excludes many American internet companies from competing in the Chinese market. With its strategic steel and aluminum tariffs and aggressive CFIUS rulings, the Trump administration seems determined to do something similar in the United States. But excluding Broadcom won't necessarily protect America's technological leadership.
The injection of some Singaporean know-how might actually have been good for Silicon Valley. Instead Singaporeans might learn the unintentional lesson that they're not welcome in America. China has actively courted Singaporean knowledge and advice since the 1980s. It would be a shame if the U.S. put up a wall just as the Chinese are learning that it's past time to tear theirs down.
Read more: The Problem With U.S. Tariffs On Steel And Aluminum That No One Is Talking About
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.
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.
