Broadcom/Qualcomm: What happens now?

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China, and cities like Shanghai, continues to loom over the battle between Broadcom and Qualcomm. (Image: j.sau / CC BY 2.0)

As the industry digests news that President Trump issued an order barring Broadcom from pursuing an acquisition of Qualcomm in order to protect national security, the question becomes: What happens now?

First, it appears that Broadcom doesn’t yet have a Plan B. “Broadcom is reviewing the Order. Broadcom strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns,” the company said in a statement.

That’s noteworthy because Broadcom has consistently worked to remain ahead of the game in its pursuit of Qualcomm by, for example, raising its bid for Qualcomm and then also speeding up the relocation of its headquarters.

Now, though, Trump’s lengthy and comprehensive block to Broadcom has left it with little to say beyond a two-sentence statement. Next for Broadcom? According to a lengthy Reuters article, the company could well turn its sights on Xilinx or Mellanox in order to satiate Broadcom CEO Hock Tan’s seemingly insatiable appetite for growth through acquisitions. (As Reuters noted, Tan grew Avago into a giant chipmaker worth $100 billion in just a few years partly through the purchase of Broadcom for $37 billion in 2015 and a purchase of Brocade Communications for $5.5 billion in 2017.)

A bigger question, though, it what might happen to Qualcomm. The company now clearly enjoys the full protection of the U.S. government, which made crystal clear Qualcomm’s importance to the nation: “Qualcomm has become well-known to, and trusted by, the U.S. government,” the U.S. Treasury, through its Committee on Foreign Investment in the U.S. (CFIUS), wrote in a letter a week ago that essentially laid out the government’s concerns regarding Broadcom’s attempt to purchase Qualcomm. “Having a well-known and trusted company hold the dominant role that Qualcomm does in the U.S. telecommunications infrastructure provides significant confidence in the integrity of such infrastructure as it relates to national security.”

But Trump’s move to shield Qualcomm may end up limiting the company’s global growth options. Indeed, as the Wall Street Journal noted in a lengthy article, Qualcomm likely now will face more challenges in its largest market: China. The publication noted that business in China accounts for roughly two-thirds of Qualcomm’s revenuesand the country may well retaliate against Trump’s protectionist agenda and brewing trade war.

Indeed, China was specifically singled out in CFIUS’ letter: “A weakening of Qualcomm’s position would leave an opening for China to expand its influence on the 5G standard-setting process,” the agency wrote. “Chinese companies including Huawei have increased their engagement in 5G standardization working groups as part of their efforts to build out 5G technology. For example, Huawei has increased its R&D expenditures and owns about 10% of 5G essential patterns. While the United States remains dominant in the standard setting space currently, China would likely compete robustly to fill any void left by Qualcomm as a result of this [Broadcom] hostile takeover. 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.”

Already, Chinese network infrastructure vendors Huawei and ZTE have been singled out by the U.S. government as possible conduits for potential Chinese espionage. Now, the blockage of Broadcom’s move into the semiconductor market, and the overt warning about China and 5G, could spark reactions from a Chinese government currently moving to secure additional control and influence.

Beyond Qualcomm though, Trump’s almost unprecedented move to block a transaction that hadn’t yet been finalized further indicates his desire to spur the United States’ role in the development of technology and 5G specifically. And that development likely will dovetail with the 5G strategies laid out by Verizon, AT&T, Sprint and T-Mobile. All of those carriers have signaled their intention to roll out 5G services this year. And all of those carriers have called for rules that will help them more quickly deploy 5G network infrastructure and obtain additional spectrum.

And in response, Trump’s FCC chairman, Ajit Pai, is scheduled to vote this month on new rules aimed at smoothing the deployment of small cells and other network equipment geared toward densifying wireless networks in advance of 5G. Further, Pai recently announced his agency hopes to conduct an auction of 28 GHz millimeter-wave spectrumspectrum specifically geared toward 5G technologyas early as this November.

Thus, while Trump’s move to ban Broadcom’s steps into the U.S. market may cloud the global opportunities for U.S. companies like Qualcomm and Cisco that are hoping to expand sales in China, it also provides a clear signal to companies developing new technologies that they may receive regulatory aid.