Why Trump blocked Qualcomm-Broadcom: It's all about 5G

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If Intel were to acquire Broadcom, the semiconductor maker would gain entry into a market that it has been struggling to find a toe-hold in - wireless handsets. That followed another CFIUS letter last week, again to both companies, which questioned what a deal might mean for Qualcomm's position in the development of 5G technology. "That writing could potentially preclude an Intel and Broadcom combination".

In addition to blocking Broadcom's takeover efforts, yesterday's presidential order also blocked 15 Broadcom nominees from standing for election as Qualcomm directors.

Absorbing Qualcomm, Broadcom would have significantly expanded the range of solutions that today are largely limited to chips for Wi-Fi and Bluetooth equipment, and also intended for industrial applications.

"On the basis of the findings", the order continues, "the proposed takeover of Qualcomm by [Broadcom] is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether effected directly or indirectly, is also prohibited". Broadcom is known for cutting R&D to boost short-term profits. In the last three decades, the company has expanded from just being an electronics reseller into one of the world's most important communications companies with exposure in cybersecurity, smartphones, telecoms gear and cloud computing. (NASDAQ:QCOM), which has been under government scrutiny due to national security concerns.

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Qualcomm was never really open to the idea of being acquired by Broadcom even though the latter has revised its bid multiple times and even tried to fill Qualcomm's boards with members that viewed the merger favorably. It said: "given well-known U.S. national security concerns about Huawei and other Chinese telecommunications companies, a shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States". However, to boost its acquisition offer, Broadcom lately has worked on putting supportive members on Qualcomm's board.

CFIUS, which raised concerns about the Qualcomm deal with Trump, listed the highly leveraged nature of Broadcom's bid for its larger rival as a major concern coupled with the risk of the USA losing mobile technology leadership. According to Bloomberg, the company is now working to shift its headquarters from Singapore to the U.S. The transition is expected to be completed by April 3.

Broadcom released a statement shortly before Trump blocked the offer saying that if the two companies did merge, that the headquarters could relocate to the USA, instead of the current Broadcom headquarters in Singapore. If Broadcom fails to get approval even after shifting the headquarters, then the company would possibly take the matter to court.

The acquisitive communications chip maker recently closed a deal to acquire Brocade Communications Systems, a US wireless and wired device manufacturer that also serves the enterprise storage market with storage switches for all-flash datacenters. Last September, he blocked the sale of Hillsboro, Ore. -based Lattice Semiconductor (LSCC) to Canyon Bridge Capital Partners, which has ties to a fund owned by the Chinese government.