Manufacture This

The blog of the Alliance for American Manufacturing

Wants to keep Qualcomm owned in America, heavily invested in R&D for 5G.

On Monday President Trump blocked a hostile takeover of Qualcomm, a San Diego-based chip maker, by Broadcom, a rival based in Singapore. He did so on the recommendation of the Committee on Foreign Investment in the Unied States (CFIUS), a government agency that reviews potential deals for their national security implications.

What’s the deal with Broadcom? Why would CFIUS step in to stop a Singaporean company from buying an American technology company?

Well, China, that’s why.

Qualcomm, currently the world’s largest chip maker for smartphones, is competing with a Chinese firm, Huawei Technologies, to be top dog in the development and manufacturing of the next generation of wireless technology. It’s the fifth generation – better known as 5G. It will be faster, respond to our myriad computer devices more quickly, and will feature heavily in the next round of technology and inventions coming down the pike.

Qualcomm currently puts a friggin' ton of its money toward research. The New York Times noted:

In its last fiscal year, the company’s $5.5 billion of research and development outlays were equivalent to 25 percent of its revenue. That was up from 21 percent on average in the preceding five years. According to Qualcomm executives, spending on 5G has driven the increase.

And it's that commitment to R&D that heavily influenced the CFIUS recommendation that Trump spike the sale. "Reduction in Qualcomm's long-term technology competitiveness and influence in standard setting would significantly impact US national security," the committee wrote.  

What's that mean? 

It means CFIUS is concerned that if Broadcom were to buy Qualcomm, it could drastically reduce the company’s efforts in the race toward 5G dominance – and thus cede this next generation of technology to China. The fact that the Chinese rival is Huawei (a company with ties to the People’s Liberation Army since its early days, and has faced major scrutiny from Congress) probably played a role in the CFIUS recommendation.

It also looks like it’s influenced by political matters. President Trump is readying a bunch of China-specific tariffs in response to longstanding complaints by American companies of intellectual property theft. This decision, an industry analyst told CNET, can be viewed as a result of the climate emanating from the White House:

“It's making sure one of the greatest made-in-America companies stays that way to allow America to shape the future of communication," said Carolina Milanesi, an analyst at Creative Strategies.   

Read more about the Broadcom-Qualcomm deal that was here, and read about some of Huawei’s recent history here.