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International relations

Trump pushes 'America First' with block to Qualcomm deal

Broadcom's $117 billion bid stopped on national security grounds

AUSTIN, U.S. -- U.S. President Donald Trump intervened in the economy for the second time in less than a week on Monday by blocking Singapore-based Broadcom's $117 billion bid for American rival Qualcomm.

The acquisition would have been largest deal ever made in the technology sector.

The decision comes after Trump on Thursday signed off on import tariffs on steel and aluminum. Both moves were initiated on national security grounds. The U.S. president has suggested further steps may be taken to rectify the country's trade imbalance with economies such as China.

The latest intervention illustrates concern in Washington over China's growing technological prowess. The U.S. government has often drawn attention to how Beijing restricts foreign access to its own market.

"The national security concern is really more of national interest concern," said Chushek Chan, an analyst at research company Dealogic.

Chan said he found the move "a little puzzling," given that Broadcomm can be considered a U.S. company in many ways, despite being incorporated in the city-state.

Its CEO, American citizen Hock Tan, promised to move the company's legal headquarters back to the U.S. in a meeting with Trump at White House in November. The company also announced plans to invest $1.5 billion in training American engineers. 

Washington's decision follows a letter being sent to the companies from the Committee on Foreign Investment in the United States, or CFIUS, dated March 5. The letter expressed concern over what it described as Broadcom's short-term management focus and its impact on Qualcomm's ability to develop telecommunications technology.

The committee, which operates under the auspices of the Treasury Department, is tasked with reviewing foreign acquisitions of U.S. companies on national security grounds.

In the letter, CFIUS said Broadcom's "private equity-style" acquisition was aimed at creating short-term profits and expressed concern that it would curtail Qualcomm's research and development activity.

The letter also touches on Broadcom's plan to borrow up to $106 billion to finance the deal, claiming the increase in debt would likely encourage the company to prioritize short-term gains and reduce long-term investment.

Broadcom's business model relies on raising the company's profitability and value through acquisitions, which in turn limits resources for research and development, the letter added. This could dull Qualcomm's competitive edge in 5G technology over Chinese rivals such as Huawei Technologies, and damage its ability to supply products to the U.S. Department of Defense.

Qualcomm is renowned in the industry for a commitment to developing new technology. It channels 25% of its sales into R&D.

Chip industry analyst Patrick Moorhead said the U.S. authorities were concerned about Broadcom's ties with Huawei.

Broadcom said it would fully cooperate with CFIUS screening, but the letter implied it would be difficult to persuade the committee to approve the takeover.

Many Qualcomm stakeholders voiced support for remaining independent, while customers such as smartphone makers feared that a deal would reduce the number of communication chip suppliers, reducing competition and raising prices.

People in San Diego, where Qualcomm is based, expressed fears over how a deal might affect jobs and the company's philanthropic activity.

The Trump administration has recently stepped up its "America First" trade agenda, hardening its stance on certain trade practices and foreign acquisitions of U.S. companies.

According to Dealogic, the number of failed acquisitions by Chinese companies reached a record 68 in 2017, up from 65 in 2016.

Last month, U.S. semiconductor maker Xcerra said that the government had blocked its sale to a Chinese state-backed semiconductor investment fund.

In September, the sale of Lattice Semiconductor to Beijing-backed fund Canyon Bridge Capital Partners was also stopped.

Lawmakers in December introduced bills that barred the government and its contractors from using equipment from Chinese phone equipment makers Huawei and ZTE.

Deals outside the technology sector have also come under scrutiny from regulators. In January, China's Ant Financial Services' bid for American financial technology company MoneyGram International collapsed following an investigation by the CFIUS, which was concerned about the safety of financial data of American citizens.

Nikkei staff writers Taisei Hoyama and Mitsuru Obe contributed to this article.

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