Blocking Broadcom’s Takeover Ensures U.S. Security

President Trump’s recent decision to halt Broadcom from moving foward with a hostile takeover of Qualcomm is good news for American national security.

Some have cast the administration’s intervention as “protectionism.”  Those people are ignoring the main point.

The president’s order preserving the U.S. firm’s independence acted, as the Wall Street Journal said, on “national-security concerns in this case [that] are legitimate.”

The Committee on Foreign Investment in the United States investigated the Singapore-based company’s bid for San Diego-headquartered Qualcomm.  The presidential order alludes to CFIUS’s “credible evidence” that Broadcom “might take action that threatens to impair the national security of the United States.”

Notably, CFIUS considers U.S. national security interests in its assessments of foreign investments or acquisitions.  Its jurisdiction is limited to national security.  Thus, the Qualcomm-Broadcom matter was based upon the jeopardy the prospective deal poses to U.S. national security.

Further, CFIUS noted “Qualcomm’s [R&D-based] technological success and innovation” and its “unmatched expertise.”  “[W]eakening of Qualcomm’s position would leave an opening for China to expand its influence on the 5G standard-setting process,” CFIUS wrote, leading to “substantial negative national security consequences for the United States.”

CFIUS’s classified findings ultimately formed the basis for the president’s action. To the objective eye, Broadcom caused serious concerns.

Though U.S.-founded, Broadcom isn’t a returning prodigal son.  Avago Technologies acquired the semiconductor company in 2016, kept the brand name, and relocated its headquarters to Singapore.

Broadcom CEO Hock Tan stood in the White House last November, very publicly announcing his intention to return Broadcom’s headquarters to the United States.  Days later, Broadcom proffered a bid to acquire Qualcomm.

When the U.S. firm demurred, Tan and Broadcom wouldn’t take “no, thank you” for an answer.  They escalated a hostile takeover bid, didn’t abide by CFIUS’s directions, and raced against U.S. security reviews and the clock.

CFIUS wrote in its March 5 letter blocking Broadcom’s stratagem of replacing Qualcomm’s board of directors, “. . . Broadcom’s statements indicate that it is looking to take a ‘private equity’-style direction if it acquires Qualcomm, which means reducing long-term investment, such as R&D, and focusing on short-term profitability.”

CFIUS noted $106 billion of debt Broadcom arranged to finance the acquisition, which “could increase pressure for short-term profitability.”  This fit into Tan’s and Broadcom’s modus operandi:  raise acquired firms’ “profits and market capitalization . . . followed by reductions in R&D investment.”

Had Mr. Trump not stopped Broadcom, U.S.-based technology may not set the standards — and level of security — adopted for 5G telecommunications infrastructure.  A weakened, dismantled Qualcomm could be overtaken by China’s national champion, Huawei.

Congressional concerns over Huawei products’ security and privacy vulnerabilities, as well as the company’s intimacy with the Chinese government, have kept its phones and equipment out of U.S. stores.

Qualcomm has achieved global leadership in semiconductors, becoming the world’s dominant firm.

A startup in the 1980s, the firm has grown through pioneering invention, significant R&D, and licensing its patents.  Employing 30,000 engineers, the company spends about one-fifth of its revenues on research and development, second only to Intel.

Year after year, technology after technology, Qualcomm’s microchips set the standard.  Mr. Trump’s decision kept a known private equity-type wheeler-dealer from crippling U.S. leadership in strategically vital areas like 5G and the Internet of Things.

Chinese and other interests try to win by politicking in standards bodies.  Thankfully, the integrity of standards-setting groups hasn’t been bribed.

Qualcomm technology wins, fair and square.  Its products and components are chosen on the technological merits.

Qualcomm’s innovation edge underpins U.S. leadership in the technological infrastructure for 3G and 4G wireless communications and is well on the way developing standard-setting, state-of-the-art 5G technology.  CFIUS saw the huge implications for our national security.

The president’s order, based upon well-founded national security concerns, sends a clear signal to China and other foreign countries:  America is serious about safeguarding her security interests.