President Trump has squashed a proposed merger between chip makers Broadcom and Qualcomm, citing national security concerns, through an executive order. The deal, which fell apart after the order was issued, would have combined two of the world’s leading microchip manufacturers.
Qualcomm is one of the largest chip manufacturers in the U.S. Broadcom is headquartered in Singapore, but is exploring a move to California. It’s also among the world’s biggest chip makers, along with companies like Samsung and Intel.
What’s a microchip?
Microchips are the small packets of circuits that are used for computing. Acting as semiconductors, microchips are used in all sorts of consumer products, from automobiles to smartphones, and even appliances. They’re small and are assembled through a complex manufacturing process.
In 2017, total microchip sales totaled more than $412 billion globally according to industry data.
Trump steps in
Presidents don’t often step in to block a corporate merger. In fact, this is only the fifth time it has ever happened. Nevertheless, it’s the second attempt by the Trump administration. The justice department also sued to stop a proposed merger between AT&T and Time Warner, reportedly over antitrust concerns.
In 2017, total microchip sales totaled more than $412B globally according to industry data
But the Broadcom-Qualcomm deal? The president’s motivations are less clear, which is what has many people wondering what the implications are.
What does this have to do with national security?
The Trump administration’s primary concern, as it relates to national security, has to do with the importance of the microchip industry. Chips can be found in almost everything these days — from refrigerators to smartphones — and a merger between Broadcom and Qualcomm potentially allows economic adversaries like China to have more influence over the industry.
Many of the world’s biggest chip manufacturers are in Asia, including countries like South Korea, Taiwan, and Japan.
The fear is that if other countries have too much sway over chipmakers, they’ll in turn have power over American tech companies. If the world’s chipmakers were all concentrated in Asia, for example, security flaws or a shortage (artificial or otherwise) could be disastrous for businesses and consumers in the U.S.
Qualcomm also plays an important role in supplying technology to the military, and regulators have expressed concern that Broadcom could gut the company’s research and development teams, putting America at a disadvantage.
Broadcom has disputed the Trump administration’s claims. It said in a statement earlier this week, it “strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns,” according to CNN. The company had also previously offered to set up a $1.5 billion fund to train U.S. engineers, and to establish the U.S. as leader in microchips.
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On the surface, it wouldn’t seem like the scuttling of one merger between two companies would mean much. But it was the manner in which it was done, and the potential for retaliation by foreign governments, that could lead to issues, according to industry experts.
By sinking the Qualcomm deal, the Trump administration could hurt U.S. interests abroad, according to industry analysts. U.S. companies, for example, could similarly be blocked from acquiring companies overseas, according to reports.
The Trump administration has already stoked fears of a trade war after imposing tariffs on steel and aluminum, and his decision to block this deal is adding to experts’ fears. China, for example, could hit back, by drawing the U.S. into a trade war. Even though Broadcom, in this case, isn’t a Chinese company, it does have ties to China.
And just a whiff of a trade war has the power to potentially sink the markets and hurt investors.