What's going on?
US President Donald Trump officially declared on Monday that his administration would block the proposed $117 billion buyout of giant US chipmaker Qualcomm by Broadcom, a chipmaker currently headquartered in Singapore, on national security grounds.
What does this mean?
Broadcom, which makes the wifi chips in Samsung and Apple products, had been working on buying Qualcomm since November. Qualcomm had resisted, but negotiations were ongoing. At least, they were until the White House conclusively intervened to kill what would have been the largest tech acquisition ever (tweet this).
According to the Committee on Foreign Investment in the United States, a Broadcom buyout of Qualcomm could have damaged America’s chances in the global race to develop next-generation wireless technologies like 5G. It said that Broadcom, with its reputation for cost cutting, might have scaled back Qualcomm’s research and development, allowing foreign rivals to get new technology to market first. Some, however, see the decision as politically motivated.
Why should I care?
The bigger picture: Under Trump, the list of scrapped business ventures with ties to China has gotten pretty long.
Even though Broadcom is a Singaporean company, the move to block its acquisition of Qualcomm seems to be largely aimed at bolstering American companies against Chinese competitors like Huawei, whose influence in the tech world has been steadily growing this decade. Under pressure from the US government, Verizon and AT&T recently agreed to drop Huawei smartphones from their product line-up. It seems that the White House is prepared to keep using new legal instruments and powers to minimize Chinese business activity (especially when tech-related) in the American economy.
For markets: Investors didn’t kick up much fuss.
Even though Broadcom forecasted a significant boost to profits from a merger with Qualcomm, its investors might be relieved that Broadcom isn’t spending a hefty chunk on Qualcomm. Meanwhile, Qualcomm’s stock fell almost 5% as prospects of a bumper payout vanished.