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Broadcom says to stick with United States 5G investment after Qualcomm deal

Broadcom says to stick with United States 5G investment after Qualcomm deal”

Broadcom Ltd.'s effort to take over rival chipmaker Qualcomm Technologies Inc. has hit a new hurdle, with one arm of the US government pushing back against the deal on national security grounds. Qualcomm's board has rejected the offer, and a few days ago it urged shareholders to reelect its members at the annual shareholder meeting that had been scheduled for March 6.

The secretive panel, called the Committee on Foreign Investment in the United States (CFIUS), has scuppered several attempts by Chinese technology companies to acquire US chipmakers in the last 12 months over concerns about the transfer of potentially sensitive technology. The multi-agency body is headed by the Treasury. Qualcomm said it received the letter on Sunday.

In January, Chinese firm Ant Financial canceled its bid to acquire US money transfer company MoneyGram, after CFIUS rejected the deal, citing concerns over the safety of data that can be used to identify USA citizens. Now we have a few more details on the matter, with a USA advisement panel deeming Broadcom's proposed takeover plans as a potential risk to national security. "Chinese companies, including Huawei [Technologies], have increased their engagement in 5G standardization working groups as part of their efforts to build out a 5G technology".

The telecoms industry hopes that 5G will be used to connect billions of objects to the Internet, including things like cars. The concern comes mainly from the fact that China-based Huawei has been spending money on 5G development and now holds about 10% of essential 5G patents.

"While the United States remains dominant in the standards-setting space now, China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover", according to the Treasury Department. The attorney believes that the letter from the U.S. Treasury spells the end of Broadcom's bid for now. The Motley Fool owns shares of Qualcomm.

Broadcom, to get around a CFIUS review, had promised earlier to become a U.S. company by mid-May. It lends weight to Qualcomm's argument that the hostile bid would struggle to get regulatory sign-off.

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For more than three years, Qualcomm's stock has been weighed down while the stock market overall has soared.

The deal was expected to face tough scrutiny from competition regulators.

In the letter, Treasury officials said Broadcom could take a "private equity" style direction if it acquires Qualcomm, which means reducing long-term investments, such as research and development, and focusing on short-term profitability, the letter said.

Broadcom said it is cooperating with the investigation.

The government's action highlighted growing United States concerns about safeguarding semiconductor technology and cast a doubt on the deal's success. Specifically it thinks the move could pose a risk to the national security of the US.

The response came after the Committee on Foreign Investment in the United States, the government panel known as Cfius that reviews the national security implications of transactions, ordered a delay of Qualcomm's shareholder meeting as Broadcom sought to win a majority of the company's board seats.



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