Published: Wed, March 14, 2018

Trump blocks Broadcom's attempt to buy Qualcomm

Trump blocks Broadcom's attempt to buy Qualcomm

The president concurs. And so endeth the proposed union of Qualcomm and Broadcom, a brief shining dream that nobody seems to have wanted, no one seems to have thought would do anybody much good, and which came with risks to national security that left everyone in the room cold.

The deal would have created the world's No. 3 semiconductor company with a leading market share in smartphones, auto electronics and industrial internet devices.

"It is not that rare for the government to block acquisitions, said Avi Greengart, research director for connsumer platforms and devices at GlobalData".

The acquisitive communications chip maker recently closed a deal to acquire Brocade Communications Systems, a US wireless and wired device manufacturer that also serves the enterprise storage market with storage switches for all-flash datacenters.

"Xilinx satisfies most of Broadcom's requirements and is in a stable duopoly, though valuation could be high given Broadcom's historical discipline", RBC Capital Markets analyst Amit Daryanani said in a report. It will also weaken the position of the United States and Huawei will take a leading position, according to a Bernstein chip analyst, named Stacy Rasgon. "He buys franchises, things that he believes have competitive modes, long visibility on revenues, opportunities for operational improvements".

"There may be avenues for the companies to work together in other kinds of arrangements, but anything that looks like Broadcom controls Qualcomm, especially around the 5G business, CFIUS will be alert to".

The order quashing the Broadcom-Qualcomm deal is being met with a wide range of reactions.

Broadcom chief executive Hock Tan had written to USA policymakers last week to argue that legal claims Qualcomm is facing, alleging abuse of its patents to damage competition, should be seen as a risk to Qualcomm's 5G investment. That followed another CFIUS letter last week, again to both companies, which questioned what a deal might mean for Qualcomm's position in the development of 5G technology.

Huawei, China's largest homegrown smartphone maker and a leader in tech innovation has been at the center of attacks by US politicians. Xilinx makes chips used for wireless communication and Mellanox's products connect servers and storage systems, complementing Broadcom's broad portfolio.

Broadcom now has ample firepower for smaller deals, with about $11 billion in cash and the potential to generate almost $9 billion in annual free cash flow, analysts estimate. Xilinx has a market value of $20-billion and Mellanox is just under $4-billion.

Neither company was immediately available for comment.

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.

While Trump didn't share any of the "credible evidence" he says he saw, he gave the U.S. Attorney General full power to enforce his order and ensure Broadcom backs away.

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