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US security panel deems Broadcom’s bid for Qualcomm as a potential risk to national security

Yesterday we learned that Broadcom's attempt to conduct a hostile takeover of Qualcomm had hit a roadblock. It seems that Qualcomm contacted US investment authorities to launch an investigation, which incidentally led to Qualcomm's annual shareholders meeting being delayed. Now we have a few more details on the matter, with a US advisement panel deeming Broadcom's proposed takeover plans as a potential risk to national security.

The US Committee on Foreign Investment (CFIUS) has ordered a national security review of Broadcom's proposed deal. This came after receiving a letter from a security panel, which noted Broadcom's “relationships with third party foreign entities” as a cause for concern, in addition to its “business intentions with respect to Qualcomm”.

There are other reasons at play here, including the amount of money Qualcomm invests into research and development. The letter notes that Qualcomm typically ranks second among semiconductor companies in R&D spending, with Intel taking the number one spot. The US government sees value in Qualcomm's position in the market, with the company often acting as a leader in setting standards. This is particularly crucial now, with the 5G network race in full swing.

Essentially, a reduction in Qualcomm's long-term competitiveness and influence would have an impact on the United States. While Broadcom acquiring Qualcomm would cement the company as the third largest chip maker in the world, CFIUS is looking to “assess the likelihood” that this acquisition could “result in a weakening of Qualcomm's position” in the future. Broadcom's past acquisitions could be used as evidence of a weaker market position in the event of a Qualcomm takeover. The security panel has concerns over Broadcom's past acquisitions, in which Broadcom cut R&D spending down in order to boost short-term profits, favouring that over innovation and long-term product development.

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KitGuru Says: It looks like the US security panel found plenty of reasons for the government to be concerned over Broadcom's attempts to take over Qualcomm. No final decisions have been reached just yet, but for the time being, things don't seem to be going in Broadcom's favour. 

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