Broadcom’s move to acquire Qualcomm in a hostile takeover is now being viewed as a national security risk by the Committee on Foreign Investment in the United States (CFIUS). The committee cites concerns that Broadcom’s connection with Chinese companies, such as Huawei, could have a detrimental effect on the United States’ lead in 5G.
Earlier this week, the U.S. Department of Treasury’s CFIUS ordered Qualcomm to postpone a board of directors election for 30 days. CFIUS said it wanted additional time to investigate Broadcom’s proposed acquisition of San Diego-based Qualcomm.
On March 5, CFIUS penned a letter saying it believes that if Broadcom is successful in purchasing Qualcomm it could pose a risk to the national security of the United States.
The letter states that Qualcomm is a trusted company by the U.S. government, and that its technology plays a dominant role in U.S. telecommunications infrastructure. “A weakening of Qualcomm’s position would leave an opening for China to expand its influence on the 5G standard-setting process,” states the letter. “China could likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover.”
The letter also states, “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.”
CFIUS intends to conduct a full-blown investigation into the possible purchase of Qualcomm by Broadcom. This is a more aggressive tactic than CFIUS usually takes. “In most cases, the panel operates in secret and weighs in after a deal is announced,” according to the New York Times. “In this instance, CFIUS, which is made up of representatives from multiple federal agencies, is taking a proactive role and investigating before an acquisition agreement has even been signed.”
Broadcom Sweetens the Pot
For its part, “persistence” seems to be Broadcom’s middle name. Today Broadcom made a formal pledge, as part of its offer to acquire Qualcomm, that it would create a new $1.5 billion fund to train and educate the next generation of engineers in the U.S. In its pledge it stated, “Broadcom is committed to making the U.S. the global leader in 5G.”
As for the U.S. government’s concern, it is a bit convoluted given the fact that Broadcom is actually a Singaporean company, not a Chinese company. And Broadcom is also in the process of changing its domicile to the United States as part of its deal to acquire Brocade. It says its redomicile process will be complete no later than May 6.
The conflict between Qualcomm and Broadcom highlights renewed suspicion by the U.S. government that China might jeopardize national security through technology.
In January U.S. Congressman Mike Conaway (R-Texas) introduced a bill that specifically names ZTE and Huawei as companies the U.S. should not do business with. The H.R. 4747 bill titled “The Defending U.S. Government Communications Act” prohibits the government from purchasing or leasing telecommunications equipment and/or services from Huawei and ZTE.
And in February two U.S. senators, Tom Cotton (R-Ark.) and Marco Rubio (R-Fla.), introduced similar legislation that would prevent the U.S. government from buying or using telecommunications equipment from Huawei or ZTE because of concern that the Chinese companies would use their equipment to spy on U.S. officials.