It is indeed braking rather than breaking a hostile takeover worth $117 billion.
While Broadcom is Singapore-based, the supporting capital is China’s, so ‘national security’ covers a host of reasons, much like the steel/aluminum tariffs. National security is not a substitute for industrial policy, even with chaos in the WH.
More interesting will be insider financial speculation related to this development, and handwaving about Broadcom’s redomiciling to the US.
Those wanting to give greater credit to Trump should know that the Committee on Foreign Investment in the United States (CFIUS) was an instrument deployed during the Obama administration.
While there are many issues at stake in the merger, the one that drove interest in Washington has been Qualcomm’s leadership role in 5G, a technology that the Trump administration considers to be a national security priority. Only two companies in the world have the technological prowess today in this emerging standard: U.S.-based Qualcomm and China-based Huawei.
The Pentagon and national security beltway types have been deeply concerned about Huawei technology encroaching on U.S. telecom infrastructure, even going so far as to block the introduction of Huawei’s new mobile phone from being introduced on AT&T’s network.
Broadcom is Singapore-domiciled, but has the majority of its workers and office space in North America. However, it has a reputation — whether earned or not — of playing a classic private equity game of massively cutting R&D to boost short-term profits. Washington’s concern has been that a Broadcom takeover of Qualcomm would mean that America’s only player in the 5G race would be eliminated through budget cutting, leaving China to monopolize a key technology standard for a generation.
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China is the second largest economic market in the world, and almost certainly the second most important technology market after the United States. A disruption in the flow of talent and capital between these markets — as we witnessed today — will force company CEOs to resist foreign capital and potentially accept lower valuations as a result. It will also limit the strategic opportunities for global expansion, requiring companies to adapt their strategies not just in China, but elsewhere in the world. In short, today’s decision is the pen stroke heard around the world.
techcrunch.com/...
5G, or the fifth generation of cellular technology, is seen as a potential game-changer because of its heightened speed, responsiveness and ability to handle a myriad of connected devices. Beyond giving you a much faster connection on your phone, 5G could serve as the communications foundation for emerging technologies like self-driving cars, streaming virtual reality experiences and advanced telemedicine options like remote surgery.
But multiple companies want to influence how 5G technology works, and they're jockeying for position. Unlike older wireless tech such as 3G, where a Verizon Wireless smartphone wouldn't work on AT&T's network, 5G is formed via a global standard that every country and company agrees to. While many of the standards are in place, there are still plenty of details to be worked out.
The prospect of Broadcom buying Qualcomm and its valuable 5G research reportedly led Intel to consider buying Broadcom. Intel, which sells chips for laptops and desktops, missed the boat on smartphone chips. It sees 5G as a fresh start to make a bigger mark in the mobile world, but likely didn't want to compete against the combined might of Broadcom and Qualcomm.
www.cnet.com/...
Ben Thompson at Stratechery has an in-depth explainer on Qualcomm's business models, and why the Broadcom acquisition was seductive to shareholders. But my quick summary is that Qualcomm has become for 2018 what the RAND Corporation and Bell Labs were to the mid-20th century—a privatized way for the US to do basic scientific research that then benefits our government, our entire economy, and the world.
Unfortunately, basic research involves a lot of long bets, some of which fail, and it isn't optimized for maximum shareholder value. Broadcom, formerly Avago, is a technology chop shop designed to squeeze profit out of its acquisitions. Some Qualcomm shareholders were reportedly rubbing their hands in glee at the prospect that Broadcom could make maximum bank on current and near-future products by ditching those long bets.
So the government's decision doesn't have to do with Broadcom being based in Singapore—in fact, Broadcom was in the middle of moving its headquarters back into the US. It has to do with Broadcom's business model of being a technology Dollar Tree, and how that would cause the merged company to lose leadership in 6G. (Yes, 6G. 5G is pretty much baked at this point.) The government just had to act now because it could only legally make this move while Broadcom was still based overseas.
This is all good, actually. The problem is the underlying motive of the government trying to amp up a technology Cold War with China.
Most reporting is saying that the deal was killed because the government doesn't want Huawei—specifically Huawei, not anyone else—to gain an upper hand in 5G development, much as that insane "nationalized 5G network" proposal in January was specifically about fighting China.
www.pcmag.com/...