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Why Trump blocked Qualcomm-Broadcom: It's all about 5G

Trump targets China
Trump targets China 09:37

Donald Trump just stepped into the global 5G "arms race."

The U.S. president late Monday issued an executive order blocking a corporate merger, Broadcom's proposed $117 billion deal to buy mobile chip giant Qualcomm, citing national security concerns. The order came a week after the Committee on Foreign Investment in the U.S., or CFIUS, expressed concern that the takeover of Qualcomm by Singapore-based Broadcom could leave the U.S. behind when it comes to mobile technology.

What's unusual is the timing of both the warning and the presidential order, which came before Qualcomm and Broadcom ever formally agreed to a deal. CFIUS, which is part of the Treasury Department, tends to step in only after a deal is struck and has to go through regulatory review. Indeed, Qualcomm was in the midst of fighting off a hostile takeover. The expedited action underscores the government's view of the importance of 5G wireless technology.

"There is credible evidence that leads me to believe that Broadcom … might take action that threatens to impair the national security of the United States," Trump wrote in the executive order.

5G, or the fifth generation of cellular technology, is seen as a potential game-changer because of its heightened speed, responsiveness and ability to handle a myriad of connected devices. Beyond giving you a much faster connection on your phone, 5G could serve as the communications foundation for emerging technologies like self-driving cars, streaming virtual reality experiences and advanced telemedicine options like remote surgery.

But multiple companies want to influence how 5G technology works, and they're jockeying for position. Unlike older wireless tech such as 3G, where a Verizon Wireless smartphone wouldn't work on AT&T's network, 5G is formed via a global standard that every country and company agrees to. While many of the standards are in place, there are still plenty of details to be worked out.

5G influence

That's where Qualcomm comes in. The San Diego, California-based company, the world's largest maker of chips for smartphones (if you own a high-end Android smartphone, it's likely using a Qualcomm processor), owns a number of the technologies that served as the foundation for 3G and 4G technology, and it's been pouring R&D dollars into 5G.

"Details of the security risk are likely around 5G cellular technology [where] Qualcomm, in our view, is well ahead of foreign and domestic competitors," said Stifel analyst Kevin E. Cassidy in a report late Monday.

Apparently, the U.S. government agrees.

"Reduction in Qualcomm's long-term technology competitiveness and influence in standard setting would significantly impact U.S. national security," CFIUS said in its recommendation. The agency pointed specifically to foreign investment in 5G from Chinese telecom giant Huawei as a potential threat.

The prospect of Broadcom buying Qualcomm and its valuable 5G research reportedly spurred Intel to consider buying Broadcom. Intel, which sells chips for laptops and desktops, missed the boat on smartphone chips. 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.

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

This article was originally published on CNET  

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