Chipmaker Qualcomm caught between Washington and Beijing
US chipmaker Qualcomm, which was blocked this week from being taken over amid US national security fears, was already walking a Pacific tightrope: it has government and defence contracts in America, but two-thirds of its revenue comes from China.
US President Donald Trump on Monday halted microchip maker Broadcom’s $117bn (€95bn) takeover of Qualcomm over concerns it would give China the upper hand in the next generation of mobile communications, forcing the Singapore-based firm to drop its bid.
The move illustrated the awkward position of Qualcomm, which is based in San Diego. In the US, it has government and defence contracts and is seen as a “trusted” supplier. In China, it has its most lucrative market, thanks to patent licensing fees it receives there from smartphone vendors including Apple, Samsung and Xiaomi.
On top of that, China, the US and Europe are racing to develop the next generation of wireless data network, called 5G, for mobile phones and increasingly connected devices. Whoever controls the technology will gain a potential strategic advantage, and the US government does not want to have to rely on Chinese-made gear.
The result is a delicate balancing act to navigate trade disputes and political tensions between Beijing and Washington that could irk policymakers and regulators on both sides, hurting business and deals.
“We see ourselves as part of the China semiconductor system,” Cristiano Amon, Qualcomm President told Reuters at a Beijing event in January. “It’s very clear that 5G is important to the United States of America. It’s important for China.”
Qualcomm is still waiting for Chinese approval of its proposed $44bn acquisition of NXP Semiconductors NV and trying to mend its relationship with Chinese customers after paying a fine of nearly $1bn for anticompetitive practices in 2015.
The company is helping Chinese firms ZTE and China Mobile develop 5G technology and is involved in China’s 5G standard development trials. It has similar partnerships in the US and Europe.
The Committee on Foreign Investment in the United States (CFIUS), which vets acquisitions of US corporations by foreign companies, said the Broadcom takeover risked weakening Qualcomm, which would boost China in the 5G race.
A Broadcom takeover could see the company cut research and development spending by Qualcomm or sell strategically important parts of the company to other buyers, including those in China, officials and analysts said.
As such concerns emerged, Broadcom immediately jumped into action, pledging to invest in Qualcomm’s 5G technology and accelerate its move to the US. But the plan didn’t go down well with CFIUS.
The clash marked a sharp fall from grace for Broadcom, whose CEO Hock Tan was welcomed to the White House last year to announce a plan to move its headquarters to the US. At the time, US
President Donald Trump called it “one of the really great, great companies”. Led by Tan, a US-educated Malaysian entrepreneur, Broadcom grew largely through acquisitions. Tan is an aggressive dealmaker and built the $100bn chip giant up from a business worth just $3.5bn in 2009.
Until the Qualcomm bid, its biggest deal had been the $37bn acquisition of California-based Broadcom, where the company, called Avago Technologies at the time, got its current name. (Reuters)