The Trump Administration Is ABSOLUTELY Right To Block A Hostile Chinese Takeover Of Qualcomm

Qualcomm Shutterstock/testing

Bill Walton Trustee of the Heritage Foundation and host of The Bill Walton Show
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The Trump administration recently took an important step to demonstrate its commitment to its “America First” agenda, dealing a blow to a foreign company’s attempted hostile takeover of a leading American company in 5G technology. The administration should continue to ensure that a takeover of this company doesn’t leave a void for China to fill.

Qualcomm is a leader in setting standards for the 5G, or fifth generation, wireless network, which will make possible advancements in “the Internet of Things” – everyday objects capable of receiving and transmitting data, such as self-driving cars. The development of this next generation wireless network could spur advancement in information technology, tele-medicine and infrastructure. Qualcomm also does sensitive work for the United States government.

Broadcom, a competing chip maker headquartered in Singapore, recently made several unsolicited bids to purchase Qualcomm; when Qualcomm rejected those offers, Broadcom planned a hostile takeover at an upcoming shareholder meeting by running a slate of candidates to establish its own majority on the Qualcomm board. Fortunately, the Committee on Foreign Investment in the U.S. (CFIUS) stepped in to delay that shareholder vote.

CFIUS is an inter-agency committee with authority to review the national security implications of transactions that could result in a foreign entity taking control of a US business. The committee ordered Qualcomm’s shareholder meeting to be postponed for 30 days so it could conduct a review of Broadcom’s bid. While CFIUS reviews typically take place after an agreement has been reached, the action in this case was clearly justified. A hostile takeover of the board would give Broadcom effective control of Qualcomm. Although Broadcom announced last year it intends to move its legal headquarters back to the United States from Singapore, this promised move has yet to take place, so it is still a foreign company.

Moreover, Qualcomm has a unique position in wireless technology and is the one American company leading the development of 5G, so a destabilization of the company could derail US leadership in 5G.  As CFIUS argued in its letter, “a weakening of Qualcomm’s position would leave an opening for China to expand its influence on the 5G standard setting process.” That’s why security and foreign experts at the Heritage Foundation, the American Enterprise Institute and others called for an immediate review.  Leading members of Congress like Sen. John Cornyn and Sen. Tom Cotton, and key House Republican members called on CFIUS to act.

Though Broadcom has stated it would make investments to maintain the United States’ leadership in 5G technology, its track record suggests otherwise. In its letter, the Treasury Department noted that Broadcom would take on $106 billion in debt to purchase Qualcomm, likely prompting the former to cut long-term spending on research and development in favor of short-term profitability. The letter further noted that in the last 12 years, Broadcom has spent six times as much on acquisitions as it has on research and development. If Broadcom were to take over Qualcomm, such conditions would weaken Qualcomm, paving the way for its Chinese competitor Huawei to take its place as leader in 5G technology.

If Huawei were to emerge as the world’s leader in 5G technology, not only would innovation and innovators move from Silicon Valley to China, the Chinese government may have undue influence over the emerging 5G network and related technology. The Wall Street Journal noted that Congress barred major cell phone carriers from using Huawei equipment after a 2012 report found that the Chinese government could force Huawei to facilitate spying on Americans. At a time of rising tensions between the United States and China, we simply must not take the risk of needlessly allowing a foreign company to become the world’s leader in 5G and its corresponding equipment.

Simply put, Broadcom must not be allowed to take over Qualcomm. The CFIUS’ order is a good start towards blocking a hostile takeover that would damage American national security interests by ceding important leadership in 5G technology to China. The Trump administration should be praised for taking this decisive action, and must continue its work to protect our national security and to ensure that America remains first in 5G technology.

Bill Walton is chairman of Rappahannock Ventures, a trustee of the Heritage Foundation and host of The Bill Walton Show.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.