Wrapped in the flag

6 March 2018 By John Foley Follow @johnsfoley

U.S. authorities fear the $95 bln chipmaker could lose its innovative edge if acquired by rival Broadcom. Yet objections to a foreign buyer look like a fig leaf for the real message: Qualcomm is too strategic to be taken over by a suspect suitor, regardless of its nationality.

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A U.S. government security panel detailed its concerns over Broadcom’s $117 billion takeover offer for chipmaking rival Qualcomm in a letter dated March 5. A Treasury Department official, representing the Committee on Foreign Investment in the United States, said the merger could pose a risk to national security and that the committee would further investigate the transaction.

The letter emphasized the classified nature of some of CFIUS’s concerns, including Broadcom’s relationships with “third party foreign entities.” It raised the possibility that a takeover would weaken Qualcomm’s leadership position in mobile technology and 5G, opening the door to competition from Chinese companies such as Huawei.

“Changes to Qualcomm’s business model would likely negatively impact the core R&D expenditures of national-security concern,” the official added. Qualcomm spent $5.5 billion on research and development in its latest fiscal year, a quarter of revenue. Broadcom spent $3.3 billion, 19 percent of its top line.

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