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 threat of China factored heavily into the U.S. government's decision to block Broadcom's proposed buyout of Qualcomm.
President Donald Trump, for his part, officially declared on Monday that the proposed $117 billion deal was prohibited on national security grounds. The president said in his order that "there is credible evidence" leading him to believe that Broadcom through control of San Diego-based Qualcomm "might take action that threatens to impair the national security of the United States."
That conclusion may seem extreme given that Broadcom is based in Singapore — and looking to redomicile to the U.S., where it conducts most of its operations — but it's not a fear of the Southeast Asian city state that is raising national security concerns.
"The case that has been constructed is that, given Broadcom's business practices, the worry is that they will cut investment significantly, particularly in the 5G roadmap, weaken Qualcomm, as well as the U.S. position and allow Huawei, a Chinese company to take the lead," explained Stacy Rasgon, chip analyst at Bernstein.
The Treasury Department said last week in a letter to lawyers involved in the deal that Qualcomm was trusted by the U.S. government and cited Huawei as a competitive threat in the development of 5G, which is a telecommunications standard that will allow for faster transfer of data.
President Donald Trump issued an executive order Monday blocking Broadcom Ltd. from pursuing its hostile takeover of Qualcomm Inc., scuttling a $117 billion deal that had been scrutinized by a secretive panel over the tie-up’s threat to U.S. national security.
Trump acted on a recommendation by the Committee on Foreign Investment in the U.S., which reviews acquisitions of American firms by foreign investors. The decision was unveiled just hours after Hock Tan, the chief executive officer of Singapore-based Broadcom, met with officials at the Pentagon in a last-ditch effort to salvage what would have been the biggest technology deal in history.
"There is credible evidence that leads me to believe that Broadcom Ltd.," by acquiring Qualcomm, "might take action that threatens to impair the national security of the United States," Trump said in the order released Monday evening in Washington.
The order underscores the tough stance the Trump administration is taking on foreign takeovers of U.S. technology firms. In September, he blocked the sale of Lattice Semiconductor Corp. to a Chinese-backed investor. That was just the fourth time in a quarter century that a U.S. president stopped a foreign takeover of an American firm on national security grounds. At least a half-dozen technology deals have collapsed during the Trump administration in the face of concerns raised by CFIUS.
Broadcom said in a statement it was reviewing the order and that it "strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns." Qualcomm didn’t respond to requests for comment.
Shares in Qualcomm fell 4.83 percent at 9:20 a.m. in Frankfurt.
Killed or Abandoned Under Trump Committee on Foreign Investments in the U.S. steps up opposition to takeovers from abroad Source: Data compiled by Bloomberg
The order marked an unprecedented move by the White House to stop a hostile bid for a company. Broadcom didn’t have an agreement to buy San Diego-based Qualcomm. It was fighting to win support from Qualcomm shareholders to gain control of its rival’s board and move forward with its offer. Before waiting for an actual deal, CFIUS opened an investigation to review the risks to national security.
Initially, CFIUS was split on whether to weigh in. Pentagon officials insisted on a review of Broadcom’s proxy battle, while Treasury had pushed back, according to people familiar with the matter.
But then on March 4, Treasury ordered Qualcomm to postpone its shareholder vote by 30 days, saying that a takeover by Broadcom threatened Qualcomm’s leadership in developing the next generation of wireless technology. The government said it feared Broadcom would cut investment in research and development in order to increase short-term profits. That could allow Chinese companies, namely Huawei Technologies Co., to become the dominant supplier, the U.S. said.
Trump’s order came as Broadcom was in the midst of moving its headquarters from Singapore to the U.S. Broadcom had announced the move in November after Tan met with Trump at the White House. After the meeting, CFIUS approved Broadcom’s takeover of Brocade Communications Systems, conditioned on the headquarters move, according to Broadcom.
How China’s Huawei Killed $117 Billion Broadcom Deal: QuickTake
On Monday, Tan went to the Pentagon to meet with CFIUS officials in a bid to address their concerns. Tan argued that combining Broadcom and Qualcomm would actually further U.S. interests by advancing the development of the next generation of wireless technology known as 5G, according to a person familiar with the meeting.
Tan’s meeting followed a letter from Treasury to the companies Sunday that said national security risks from the takeover may prompt a recommendation to Trump to block the deal.
"In the absence of information that changes CFIUS’s assessment of the national security risks posed by this transaction, CFIUS would consider taking further action, including but not limited to referring the transaction to the president for decision," Treasury said in the letter, which Qualcomm made public earlier Monday.
— With assistance by Ian King
Imposing steel tariffs on national security grounds? Silly.
Blocking the sale of Qualcomm to Broadcom on national security grounds? Complicated, but not entirely silly.
Using national security grounds to impose steel tariffs suggested a president thinking he was preparing for World War II, as I wrote in a previous post. A war with tanks and battleships? A 20th Century war. Please.
Using those same national security grounds to thwart an attempted hostile takeover is complicated by how an atypical president handled an atypical situation but doesn't bother me in the same way. Like it or not, we are on the cusp of a new Cold War, a war for the 21st Century, and potentially a war with power grids knocked out, with the banking system hacked, with water systems contaminated.
In 2018, cyber is a bigger threat than steel.
First the oddities of the story. And there are oddities.
This story is really about China and a not-particularly-well-known company, Huawei, which is actively competing with a San Diego-based company, Qualcomm, for dominance in the latest generation of wireless technology, 5G. Increasingly computer chips are in everything but potato chips, meaning access to them, control over them, can be viewed as a national security threat in a way that steel once could, in the last century.
A second oddity: Qualcomm, in a somewhat unusual step, appealed to a secretive government agency, Committee on Foreign Investment in the United States, to block Broadcom from making the acquisition.
A third odd twist: CFIUS only has jurisdiction over foreign acquisitions. This matters because until 2016, Broadcom was a U.S. company. It was actually founded in Los Angeles. After a 2016 acquisition, its headquarters shifted to Singapore. But in a November press conference with its American CEO Hock Tan, President Trump praised the company for its intention to relocate its headquarters from Singapore to the United States. At the time, Trump embraced this as a company returning to the United States, bringing with it jobs. Today, it still has 7,500 employees in the United States.
One last oddity. CFIUS asked for a month to complete its work, after demanding that Qualcomm delay its annual meeting. Trump, in his typical atypical fashion, stepped in Monday to block the deal, before CFIUS could complete its work. That's odd, almost as if Trump wanted to make the call before Broadcom had returned to the United States and would no longer be subject to CFIUS. Is there something else going on?
All these oddities aside, it's a decision I can support.
Trump's thought process, his change of heart about Broadcom, is not transparent but CFIUS apparently was concerned that the acquisition would slow Qualcomm's drive into 5G technology, allowing dominance to shift to Huawei, the world's third-largest cell phone company after Apple and Samsung.
Is that sound reasoning to intervene? Tough call.
Now my reasoning. If you don't think we're entering a new Cold War, you're not paying attention.
The first Cold War ran for about four decades, from the end of World War II in 1945 until 1989, essentially. That was the year the Berlin Wall fell. At the same time, the Soviet Union was dismantling as Eastern Bloc nations were spinning free of the Soviet orbit, and China was experimenting with Deng Xiaoping's "Socialism with Chinese characteristics," opening the door for the Chinese miracle that was to follow.
That is coming to a screeching halt today.
