President Trump, “US Technology is Not for Sale”
With President Trumps rejection of Broadcom Ltd.’s(NASDAQ:AVCO) hostile takeover of Qualcomm Inc., (NASDAQ:QCOM) he sent a clear signal to overseas investors: Any deal that could give China an edge in Key technology will be rejected in the name of national security.
Broadcom is based in Singapore, but China loomed large over the US government’s fears about a foreign takeover of chipmaker Qualcomm.
And that is because Qualcomm is locked in a head-to-head race with China’s Huawei Technologies Co. (SZ.002502) over which company will dominate the development of next-generation wireless technology.
“This decision hangs a huge ‘Not-for-Sale’ sign on just about every American semiconductor firm,” said Scott Kennedy, who studies China’s economic policy at the Center for Strategic & International Studies in Washington. “A Chinese entity doesn’t need to be anywhere near a transaction now in semiconductors for the deal to be nixed.”
The President’s order Monday blocking Broadcom’s $117-B bid for Qualcomm is the latest sign of President Trump’s tough stance on foreign takeovers of US technology and is part of a broader move to contain China on trade.
The Trump Administration is considering clamping down on Chinese investments in the US and imposing tariffs on a broad range of its imports to punish Beijing for its alleged theft of intellectual property.
“There is credible evidence that leads me to believe that Broadcom,” by acquiring Qualcomm, “might take action that threatens to impair the national security of the United States,” President Trump said in the order released Monday evening in Washington.
Broadcom said in a statement it was reviewing the order and that it “strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns.”
Qualcomm Chief Executive Officer Steve Mollenkopf said in a statement Tuesday that Broadcom must now permanently abandon its takeover attempt.
Lawmakers in Washington are moving forward with legislation that would expand the universe of overseas investments that require national security approval from the Committee on Foreign Investment in the US. The Trump Administration has endorsed the bill, which Senator John Cornyn (R-TX), proposed with China in mind.
President Trump’s order came as Broadcom was in the midst of moving its headquarters from Singapore to the US.
Broadcom announced the move in November after its CEO Hock Tan met with President Trump at the White House. After the meeting, CFIUS approved Broadcom’s takeover of Brocade Communications Systems, conditioned on the headquarters move, according to Broadcom.
Monday, Mr. Tan went to the Pentagon to meet with CFIUS officials in a bid to address their Qualcomm concerns. He argued that combining Broadcom and Qualcomm would further US interests by advancing the development of the next generation of wireless technology known as 5G, according to a person familiar with the meeting.
Hours later, President Trump issued his Stop order.
Concern has expanded from existing technologies with national security implications potentially falling into rivals’ hands to ensuring American companies continue to invest in R&D to maintain their technological edge.
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