Tech trade war! Trump blocks Broadcom / Qualcomm deal | Analysis

The US President turns from deal-maker to deal-breaker in an extraordinary act, reports Chris Middleton.

In an unprecedented move, US President Donald Trump has blocked Broadcom Limited’s $142 billion bid for rival chip company Qualcomm, citing national security concerns.

Had it gone ahead, it would have been the biggest deal in technology history.

In his executive order, the US President said there was “credible evidence” to believe that Broadcom might “take action that threatens to impair the national security of the United States”.

No evidence for the claim has been put forward by the White House. The President intervened to block the deal before national security investigations – initiated last week in the US – were completed.

The order states: “The proposed takeover of Qualcomm by the Purchaser is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether effected directly or indirectly, is also prohibited.”

How we got here

As Internet of Business reported on 27 February, US fabless chipmaker Qualcomm said last month that it would drop its objections to being acquired by bitter rival Broadcom, if the Singapore-incorporated company put more money on the table. Qualcomm had previously fended off Broadcom’s advances on antitrust grounds.

As reported by the FT last month, Qualcomm insisted that Broadcom raise its offer by 15 percent to $90 a share, valuing the company at $160 billion – including $25 billion of debt. Broadcom subsequently increased its bid from $117 billion to $142 billion.

Broadcom Limited was previously known as Avago Technologies, after Singapore’s Avago acquired the US-founded Broadcom Corporation in 2016. While Broadcom Limited is incorporated in Singapore, it is co-headquartered in San Jose, California.

Prior to the Qualcomm bid being blocked by Trump, Broadcom Limited told the US government that it planned to become a fully US-based operation and sever its administrative connections with Singapore.

Internet of Business says

Qualcomm and Broadcom Corporation had a history of bitter feuding and litigation dating back more than a decade before Broadcom was acquired by Avago. Broadcom Limited’s proposed takeover of Qualcomm seems to have reignited that feud.

However, President Trump’s intervention in this complex saga is extraordinary – and in some ways troubling. It appears to set a precedent for business deal approval being within the personal purview of the President of the United States, bypassing normal regulatory processes.

While Internet of Business can’t comment on the existence of any national security risks associated with the Broadcom deal, for Trump to claim there is “credible evidence” of these risks would appear to suggest that a multinational corporation has hostile intentions towards the United States itself.

That’s a different matter to a hostile takeover bid – which Broadcom’s deal certainly was – and is a serious allegation to make. Evidence to support the accusation has not been forthcoming and may never appear, as is often the case with national security matters.

As outlined above, Broadcom Limited is itself the result of a takeover of a US company by an Asian rival, and it may be that the White House simply regards the Qualcomm deal as a takeover too far for this administration to accept.

That said, national security is far from an unprecedented concern when overseas domiciled technology companies set up shop on Western soil, or take a multibillion-dollar interest in Western holdings. For example, Chinese electronics giant Huawei’s operations and staffing in the UK are closely monitored by GCHQ in an agreement between the company and the British government.

Indeed, it may be the China connection that troubles the US government behind the scenes of the Broadcom deal. But while former British colony Singapore has a close bilateral relationship with China and strong intergovernmental relationships via ASEAN, it is also a multi-party parliamentary republic and has often been regarded as a Western ally for its support of a US military presence in the region.

In these politically tense times, Trump’s comments must also be seen in the light of an increasingly protectionist stance towards US industry, and a recent policy of penalising businesses for selling products into the US.

However, the danger of such a policy is that the US technology sector is itself highly reliant on Asian manufacturing and, in some cases, IP.

For example, Republic of China (Taiwan) based Foxconn is the world’s largest contract manufacturer, and its US client base includes the world’s top four companies by market capitalisation – Apple, Alphabet, Microsoft, and Amazon – along with Cisco, Dell, Intel, Motorola Mobility, and Vizio.

These companies rely on offshore manufacturing and components to bring some of the world’s most popular technology to the public at healthy profit margins.

The US high-tech sector is also highly reliant on trading, research, and technology partnerships throughout the world, notably with two of the world’s biggest markets, China and India. In the case of China, access to Western companies has recently been increasing on a ‘like for like’ basis.

In light of all this, any extension of Trump’s global trade war into the US technology sector could set alarm bells ringing throughout the world, and in the boardrooms of the many American companies that rely on trade and knowledge exchange with Asia.