Technology

Feds warn Broadcom takeover of Qualcomm could threaten national security

by Harper Neidig 03/06/18 02:56 PM ET

The U.S. government says Singapore-based Broadcom’s hostile takeover bid of Qualcomm poses a possible threat to national security, arguing that the acquisition could threaten America’s standing as a leader in developing 5G networks and other emerging technology.

In a letter to Qualcomm dated Monday and released Tuesday, the Committee on Foreign Investment in the U.S. (CFIUS) said it was worried Broadcom’s takeover would threaten Qualcomm’s investments in research and development, opening a doorway for China to overtake the U.S. in innovation.

“While the United States remains dominant in the standards-setting space currently, China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” the letter reads. “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.”

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Qualcomm agreed to postpone its annual shareholder meeting this week in order for the panel to investigate the takeover bid. Bloomberg reported that Broadcom’s slate of board of director candidates was expected to be elected at the meeting.

The government’s move, however, could spoil Broadcom’s efforts to take over the American company.

The CFIUS has been active in blocking Chinese efforts to buy up U.S. companies, but this appears to be the first time the obscure committee has inserted itself in an active takeover process.

“We are fully cooperating with CFIUS, and are absolutely committed to making the combined company a global leader in critical 5G and other technologies,” a Broadcom spokesperson said in a statement Tuesday.

“There can be no question that an American Broadcom-Qualcomm combination will provide far more resources for investments and development to that end,” the statement added. “Entrusting this effort to a failing Qualcomm management who lacks the support of its owners, and that pays out much of its excess cash flow in fines as a result of serial lawbreaking, would not be in America’s long-term interests.”

The CFIUS is composed of officials from multiple Cabinet agencies and is tasked with investigating potential national security threats from foreign business deals in the U.S.

In Monday’s letter, the panel said that it was concerned that Broadcom, which is in the process of moving its headquarters to the U.S., would shift Qualcomm’s focus from research and development to short-term profit-generating operations, thereby threatening the company’s innovations.

Sen. Tom Cotton (R-Ark.), who has urged a crackdown on Huawei’s forays into the U.S. market, praised the CFIUS intervention on Monday.

“Qualcomm’s work is too important to our national security to let it fall into the hands of a foreign company — and in a hostile takeover no less,” Cotton said in a statement.

“It’s hard to see a good reason why we should hand over one of our leading computer-chip makers, and thereby give Chinese companies a leg-up in the race to develop 5G and the next generation of technology,” he added. “Better to keep it in American hands and protect American national security.”

Updated: 4:10 p.m.