Chipping off

C Gopinath | Updated on March 20, 2018 Published on March 20, 2018

Behind the diffused Qualcomm takeover

US President Donald Trump issuing a blunt decision rejecting Broadcom’s hostile takeover of Qualcomm on grounds of national security is curious. Qualcomm makes the kind of chips that are used in iPhones. The combination would have made it the third largest semi-conductor company in the world and a rival to Intel which was worried about the acquisition. Broadcom is based in Singapore. So there was no immediate fear that the Russians or the Chinese were going to get hold of US technology. So where’s the beef, as they say?

Well, apparently the president and his advisors were afraid of what would happen after the consolidation by the two ‘com’ companies. Qualcomm smartly appealed to the Committee on Foreign Investment in the US (CFIUS) that the acquisition would weaken it. Both companies are private and so this is a guessing game about their future corporate strategy. The US government was worried that after the consolidation, Broadcom may not be interested in pursuing research into chips to handle 5G level technology. It did not help that Broadcom’s track record showed that it spent more on acquisitions rather than R&D. Broadcom issued a statement, prior to the decision, reaffirming its interest in furthering Qualcomm’s research (it had set the standard for 3G and 4G) and its intention to move headquarters to the US where half its employees already work but CFIUS was not convinced. Of course, it helped that Qualcomm was also a defence contractor.

But the Red Threat is not far away. Trump, who claimed he had an excellent relationship with Chinese President Xi, is now seeing the Chinese hand at several places. Initial reports suggested that the recent threat of tariffs against steel and aluminum imports were directed against the Chinese. Later, the tariffs were watered down when it was found that most of the imports were from ‘friendly’ countries with who the US has security deals, including Mexico and Canada. But wait, the problem was created by excessive Chinese capacity aided by government subsidies that had depressed prices and distorted trade around the world, we were told.

So where does the red threat appear in the ‘comm’ deal? CFIUS was worried that if US control over technology development is weakened, US wireless carriers may have to depend on Chinese companies like Huawei, which is currently on the black list for procurement by US government agencies (and Australian, too). The US is worried that the Chinese government could force Huawei to use its equipment to spy or interfere with telecom networks. CFIUS has been discouraging various other takeovers by Chinese of US technology companies.

For some time now, the Chinese government has focused, like a laser, on its high tech companies under a plan called ‘Made in China 2025’ when it plans to replace foreign made with domestic products. It invested in Xiaomi to help it develop a microprocessor. Chinese state-backed funds help buy foreign technology companies. It issued rules favouring local firm Didi that made Uber capitulate and quit the country. The government has invested heavily in electric vehicle technology including building a charging-station network. The government even provided funding to develop locally the nib for ball-pens (they already make almost everything else). It has been directing its tech companies to develop facial recognition, surveillance cameras and other monitoring technologies to keep an eye on its people. Companies like such as Alibaba, Tencent and Baidu are required to cooperate in this.

If there is one area where Trump has been consistent is in perceiving China as the major threat to the US. He has praised China for its success and quickly added that past US presidents allowed China to become a threat and he will not continue that policy. And with President Xi Jinping’s coronation recently, can we blame Trump?

The writer is a professor at Suffolk University, Boston

Published on March 20, 2018
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