President Donald Trump was right to block Broadcom’s hostile takeover of Qualcomm, a major supplier of semiconductors and technology to the U.S. defense department, The Wall Street Journal said on its editorial page. Now, Qualcomm needs to demonstrate to shareholders that it can lead in the next generation of mobile technology, the newspaper said.
The president on Monday issued an extraordinary order to block the acquisition because of concerns about national security after a government panel that reviews business deals disclosed serious reservations about the bid. The Committee on Foreign Investment in the United States, also known as Cfius, has misgivings about China’s gaining access to important technologies such as the high-speed 5G wireless standard.
5G wireless networks are starting to get deployed in the U.S., with the expectation that they will enable driverless cars, drones, appliances and other automated applications that will be critical to defense. 5G may spur a new era of “smart cities” whose energy grids, traffic signals and emergency services are linked to reduce inefficiencies, NBC News reported.
Broadcom, which is based in Singapore but offered to move its headquarters to the U.S. to win favor with the White House, raised concerns about its plans for Qualcomm, such as slashing research and development spending and saddling the San Diego company with $106 billion in debt, The Wall Street Journal said.
“Broadcom’s statements indicated that it intended to take a ‘private equity’ direction to Qualcomm, which can mean reducing long-term investment to increase short-term profitability,” the newspaper said. “In the last dozen years Broadcom has spent six times as much on acquisitions as on R&D.”
Broadcom last month raised its bid for Qualcomm to more than $121 billion from $105 billion in what would be the biggest technology deal in history. Meanwhile, Qualcomm had been working for more than a year to buy Dutch chipmaker NXP Semiconductors for $39 billion. Qualcomm asked Cfius in January to stop Broadcom's hostile bid.
Scott Peters, a Democrat who represents the 52nd congressional district that includes northern San Diego, also opposed the deal because of concerns about national security and U.S. competitiveness in wireless technology.
"The Department of Defense, for example, insists on keeping shipbuilding onshore; we never want to rely on potential adversaries to build or repair our naval force," he wrote in the San Diego Union-Tribune. "The same is true for American wireless technology."
He said China's history of stealing U.S. intellectual property and the connections between China's military and its telecommunications companies are particularly worrisome.
"A 2012 House intelligence committee report noted the threat Chinese telecommunications companies pose to our national security," he said. "The concern was that Chinese companies could activate cameras and microphones in smartphones and televisions without user knowledge and the possibility that information gathered could be shared with the Chinese government."
One major worry for the technology industry is that the White House’s move to block the deal will hinder foreign investment in the U.S., even as the Trump administration seeks to make the country friendlier to businesses. Trump has followed through on cutting taxes and regulations, even as he has shown a strong protectionist streak by imposing tariffs on imported steel and aluminum.
Now that Qualcomm has evaded takeover, the company needs to show that it can be an innovator in 5G technology, according to the WSJ.
“One risk now is that without the market discipline it may relax and lose the 5G race anyway,” the newspaper said. “Apple’s decision to replace Qualcomm chips in some of its newer iPhones and iPads should raise the stakes, which may have been another reason why the company worried about its R&D getting chopped up.”
The Wall Street Journal said Cfius has broad powers that don’t need to be expanded.
“The Broadcom review shows Cfius has ample tools to block foreign takeovers of U.S. firms that threaten national security,” the newspaper said. “The U.S. economy doesn’t need more political control over investment.”
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