Broadcom Deal Goes Down

President Trump put an end to the deal for Broadcom to take over Qualcomm and its future in 5G.  The story today in the Wall Street Journal lays out a couple of things not previously known about the case.  Most everybody who reads business news knows that the U.S. was concerned about the Chinese taking over U.S. capabilities in chip making, after they bought six companies in 2016-17 and  tried to buy others.  The President also nixed the Caynon Bridge Capital Partners’ deal for Lattice Semiconductor.  There were accusations, explained in the article, that Caynon Bridge tried to hide its involvement with the government.

First, the Committee on Foreign Investment in the US (CFIUS) was very clear in a letter filed with the SEC that its concern was still with Huawei “and other Chinese companies” involvement with 5G technology.  We very rarely get to see any of this kind of documentation with a CFIUS case because everything is kept a state secret, or business private.  This letter makes it clear that certain stipulations were put on Broadcom, and one of them was the move (redomicilization - a rediculous term actually used in this kind of case) to the U.S.  Since nothing had been done to actually move the headquarters and incorporate in the U.S., doing it now was clearly and attempt to make CFIUS review impossible.   CFIUS does not generally review cases of US companies buying US companies.  

Second, there was some indication that “there may be opportunities for the companies to work together” which is something we should also be aware of.  When CFIUS headed off Huawei in the purchase of US technology companies, Huawei got around that organization by doing teaming arrangements and joint ventures with the companies they could not buy.  They got the technology they were after - and a good deal more in a couple of cases.  So, the end of the agreement to buy is not the end of the concern over Chinese involvement in the US technology sector, particularly chip sets.

Enter Intel, which has made noises like it was interested in buying Broadcom.  That is a bad idea, though CFIUS would have a more interesting time of it if that deal was proposed.  Intel does a good deal of its chip manufacturing in China, a concern we should have after some of those chips turned out to have a flaw that allowed more anyone into a computer who knew how the flaw worked and could get access to the computer.  It may be a US company, but that should not be enough to allow it to dominate the world market in chips for cellphones.  There are national security concerns equal to the Broadcom purchase in allowing Intel to buy Qualcomm.  

All this tells us is that the Chinese have learned their lessons with Huawei and CFIUS.  They are willing to change their own rules when operating outside China to allow them to buy up the chip market and control it.  They know what they have been caught doing and what CFIUS limitations are most important.  They are trying to take advantage of every law they can.  No wonder the US Congress is proposing expanding the role of CFIUS in the US.