US President Donald Trump today blocked a planned United States dollars 117 billion takeover of chipmaker Qualcomm by Singapore-based rival Broadcom for national security reasons, scuttling what would have been the biggest technology deal ever amid concerns that it would allow China to take the lead in the booming market of producing chips.
San Diego-based Qualcomm is the United States champion in the next-generation 5G mobile market, owning around 15 per cent of patents in the technology, ahead of Nokia with 11 per cent and China with 10 per cent.
"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", the letter said. Qualcomm did not immediately respond to a request for comment.
As a result of the presidential order, Broadcom's purchase efforts are on hold for the time being, if not forever. Sign up for RG Newsletters and get the news delivered directly to your inbox.
This afternoon Broadcom released a statement on the news: "Broadcom is reviewing the Order". Qualcomm quickly spurned its unsolicited suitor and continued to resist even after Broadcom raised its original offer from $103 billion. Broadcom would complete the restructure process to move its headquarters to the U.S.in May, it announced in early 2018.
He also noted that Department of Defense programs rely on access to Qualcomm products. Qualcomm is now involved in intense litigation with Apple around patents and accusations of anti-competitive behaviour.
"Qualcomm has become well-known to, and trusted by, the USA government", said Deputy Assistant Secretary for Investment Security Aimen Mir.
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The United States and China are scheduled to hold trade talks in Beijing in the near future. More than 150,000 buyers from home and overseas are expected at the event, he said.
Broadcom, which reports earnings Thursday, will likely "exceed consensus expectations", he said.
Trump said his decision was informed by a recommendation from the Committee on Foreign Investment in the United States, an interagency panel that - in its own words - investigates "transactions that could result in control of a US business by a foreign person".
The latest development shouldn't come as a surprise, said Quincy Krosby, chief market strategist at Prudential Financial. Broadcom had said the company is supported by institutions in the US and its majority directors are from the U.S.
According to the order, the president was acting on the recommendation of the Committee on Foreign Investment in the USA, known as CFIUS.
"And a chip industry merger featuring a company now headquartered in Singapore raises concerns about "Chinese influence", a report in LightReading noted today".
Singapore became Broadcom's legal home two years ago after it was sold to Avago, a company that once was part of Silicon Valley pioneer Hewlett-Packard. It maintains its administrative headquarters in California.
"I recently made this public pledge: Broadcom is committed to making the United States the global leader in 5G", Broadcom CEO Hock Tan said in a letter last week to Congressional leaders.