The surprising $103 billion bid for Qualcomm by Broadcom took many in the industry by surprise especially with Qualcomm under pressure from all sides. The company is currently in dispute with Apple with regards to chip prices and royalty fees. A potential merger of Qualcomm and Broadcom would create a $200 billion giant which many believe could reshape the mobile phone hardware industry. However, Donald Trump’s recent attack on the Chinese chip industry could backfire spectacularly.
Blocking Chinese bids
One of the first things Donald Trump did when he gained office was to look at ways of protecting US businesses and in particular technology companies. Under the guise of “national security” new guidelines were issued to the Committee on Foreign Investment in the United States. This led to a number of proposed Chinese acquisitions of US companies being blocked on “security” grounds. There are concerns that the Beijing government could use the Qualcomm/Broadcom merger as a kind of payback.
We know that the Chinese government is already looking into the potential merger and bearing in mind the fact Qualcomm has a “history” in China, the company was already on the Chinese government’s radar. A Chinese anti-competitive investigation revealed cases of “double dipping” where Qualcomm was billing Chinese customers for royalty fees as well as charging for the chips themselves. As a consequence, Qualcomm agreed to pay a $975 million fine back in 2015 which does not exactly pave the way for a smooth approval for the proposed merger.
The Apple problem
Interestingly, some experts believe that a merger of Qualcomm and Broadcom could actually reduce the tension between Apple and Qualcomm. Amid rumours that Apple is on the verge of significantly reducing the number of Qualcomm chips in future iPhones and other Apple products this could be a godsend for the company. The simple fact is that Apple and Qualcomm need each other and both companies know this. The company’s chips are still head and shoulders above the quality of any competitors.
If a combined group was able to smooth the path towards a long-term arrangement with Apple this would add significant value to the merged group and make the unsolicited $70 a share offer look relatively cheap. However, at this moment in time the group is fighting so many fires that it is difficult to see the medium to long term picture with any great clarity.
Regulatory process
If the two companies are able to agree the terms of a merger it would still take some time to receive regulatory approval in the US never mind China. There are many issues to take into consideration not least the stranglehold the combined group would have on the mobile phone hardware market. This is something which the Chinese authorities are very aware of and while unlikely to block the deal it could be delayed and conditions attached.
Maybe Donald Trump is wishing he had not been so aggressive in relation Chinese takeovers of US companies. Whether Beijing will extract some kind of revenge from the proposed Qualcomm/Broadcom merger remains to be seen.