Why did the US government block Broadcom's acquisition of Qualcomm?

ByKārlis Dambrāns

Semiconductor manufacturer Broadcom tried to acquire Qualcomm of the same company with more than 100 billion dollars (about 11 trillion yen), but the acquisition became an illusion by the Presidential Decree of President Donald Trump, issued by President Donald Trump . About this Qualcomm acquisition riot, run a Stratechery with a prominent analystBen ThompsonMr. Inquiry discusses the reports that he wrote in the past.

Qualcomm, National Security, and Patents - Stratechery by Ben Thompson
https://stratechery.com/2018/qualcomm-national-security-and-patents/

In response to the acquisition of Qualcomm by Broadcom, the Foreign Investment Committee of the United States (CFIUS) judged that the Singapore based Broadcom will take control of an American company 's Qualcomm as a threat to America' s national security We made a recommendation to the Treasury to stop the acquisition. Following this, President Trump has revealed the stance of blocking the acquisition, Broadcom announced its abandonment on March 14, 2018.

But Mr. Thompson thinks that the reason why foreign companies buy American companies is a threat to national security is not a decisive ground. Broadcom was originally based in Singapore at the timing acquired by Avago Technologies but was originally an American company,We plan to transfer our headquarters to the United States by April 3, 2018So it is.

President Cardinal also welcomed the Broadcom coming back to America. Click the image below and you can listen to Broadcom's American comeback announcement movie by President Trump.


Thompson looks back on his own report in 2014 to think deeply about the reasons for Qualcomm's refusal to buy. There, Qualcomm understands that it has two pillars of revenue of "semiconductor chip manufacture and sale" and "patent licensing business". Mr. Thompson analyzed that the profit structure by the two pillars is very good.


However, QualcommPenalty of 88 million yuan (about 120 billion yen) due to antitrust violation in ChinaAnd there is a difference that the management situation is bad more than at the time of 2014 because it was forced to lower the royalties royalty considerably.

Later, in 2015 Qualcomm had received pressure from the hedge fund Jana Partners holding a large amount of Qualcomm shares, separating the semiconductor manufacturing department from the licensing division and splitting the semiconductor manufacturing division or selling it about. However, Mr. Thompson had asserted from Qualcomm's long-term management strategy that it is inappropriate to separate the semiconductor sector following the immediate interest, and should not give in to the proposal of Jana Partners.

In this acquisition, BroadcomPrivate EquityMr. Thompson believes that it is important that he was trying to acquire it through the company. Broadcom said it planned to borrow 106 billion dollars (about 11 trillion yen) out of the acquisition cost of 117 billion dollars (about 12 trillion yen). Broadcom who got Qualcomm whose management state is getting worse than when reporting in 2014 and 2015 emphasizes short-term profitability for repaying debts, while using Qualcomm's cash flow Was expected.


(PDF file)CFIUS RecommendationAs you can see, in the standardization competition of the next generation high speed communication 5 G, there is a fierce battle with Chinese bosses including Huawei and others, and it is certainly the fact that the leadership in China with 5 G and even further 6 G will be held in China There is a risk of damaging national interests. And if Broadcom acquires Qualcomm, long-term research and development that Qualcomm should fulfill in the development competition of next-generation communication standards may be truncated, giving priority to short-term profitability, and wireless communication standards such as China Thompson says that allowing domination is just a reason for national security. In other words, Thompson thinks that it is the idea of ​​the U.S. government to avoid being disadvantaged due to the fight against supremacy of communications standards with China.

Nonetheless, it was fortunate for CFIUS and President Trump that Broadcom was a foreign company. If Broadcom was an American company, it could not be used as a "national security reason". Of course there is a way to stop the acquisition on the grounds of antitrust law, in which case the range of President Trump 's discretionary rights is much narrower and the criticism of the government' s involvement in private companies should have been more intense Mr. Thompson points out.

The reason why Qualcomm escaped the acquisition was that there was a backing of the US government, but Qualcomm was overwhelmingly dominated by semiconductors for communication originally granted a powerful right "patent" Thompson wrote in the report of 2015 that Qualcomm's existence itself is behind the rest of the state power. However, even if it does not depend on the existing patent system any longer,Network effectThompson says that the existence of a large user can maximize profit on the basis of a huge user, and unprecedented technological innovation is getting big returns.