Research

What's Next For AVGO After Qualcomm — Broadcom (AVGO) Earnings

What's Next For AVGO After Qualcomm — Broadcom (AVGO) Earnings

Broadcom said it was "disappointed" with the outcome but had no choice to drop its plans to acquire Qualcomm along with its attempts to appoint nominees to the chipmaker's board.

The US Committee on Foreign Investment in the US (CFIUS) does not usually get involved in transactions involving foreign and US companies until a deal is formally signed and announced.

The retreat ends Chief Executive Officer Hock Tan's most ambitious move yet in his efforts to build a chip empire, after leading Broadcom through a string of deals that have reshaped the $400 billion semiconductor industry in the last several years.

CFIUS also notes that Chinese tech companies such as Huawei have already played a key role in developing 5G, and it would be unwise to let it or other Chinese telecoms have such a firm foothold in such a crucial upcoming technology.

Yesterday, the President issued an executive order prohibiting the takeover of Qualcomm by Broadcom, as well as "any substantially equivalent merger, acquisition, or takeover, whether effected directly or indirectly, is also prohibited". Fears that Broadcom would wind down Qualcomm's wireless R&D led the Committee on Foreign Investment in the US, or CFIUS, to warn against the deal, which in turn prompted Trump to intervene. Companies, including Qualcomm and China's Huawei, have been investing heavily to stake their claim in the underlying technology. The Trump administration has been steadfast in taking any and all action available to them to prevent foreign companies from gaining too much of an advantage over their US competitors, particular in key industries.

"Qualcomm has become well-known to, and trusted by, the USA government", said Deputy Assistant Secretary for Investment Security Aimen Mir.




Congress issued a critical report on the Chinese tech firm in 2012 that effectively shut it out of the United States market. Chinese regulators could just as easily block an American company from trying acquire a Chinese-based company over concerns for its own national security. European-based companies could do the same, too.

Intel didn't immediately respond to a request for comment.

The FBI warned United States citizens earlier this year that they shouldn't buy smartphones made by Huawei. If the Trump administration is anxious that the USA wireless and semiconductor industries could fall behind China's, then it hardly matters whether Broadcom is a United States company or not. It sees 5G as a fresh start to make a bigger mark in the mobile world, but likely didn't want to compete against the combined might of Broadcom and Qualcomm.

Broadcom's ambitions sparked US government concerns over which country will dominate the technology, as well as fears over national security.

Patrick Moorhead, an analyst with Moor Insights & Strategy, said an independent Qualcomm will keep innovating in 5G and that "the industry is breathing a collective sigh of relief" with the deal blocked. The company further pledged to create a $1.5bn fund to bolster training and education for USA engineers. But the promise evidently wasn't enough for CFIUS, or Trump.


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