Why Is Broadcom's $117 Billion Pursuit of Qualcomm a National Security Threat?
By Stu Woo
On the surface, the U.S. government is intervening in Broadcom Ltd.'s bid for Qualcomm Inc. because a Singapore-based company is trying to buy a San Diego-based one that does classified business with the American government.
However, at its core, U.S. worries about the deal center more on the arms race playing out with China over the future wireless technology.
Global telecommunications carriers are preparing to roll out the next generation of wireless technology, called 5G. There are a lot of wrinkles to iron out, but the technology broadly promises superfast mobile connections needed for self-driving cars, virtual reality and other innovations.
Among the leading companies involved in finalizing technical standards and coming up with the patents to make it all work are a handful of Chinese telecom-equipment makers, first among them Huawei Technologies Co. There are also big western firms involved, like Finland's Nokia Corp. and Sweden's Ericsson AB.
Qualcomm is America's biggest player in 5G.
U.S. government officials worry that Broadcom has a history of acquiring companies and then selling off parts of them, according to people familiar with the matter. They fear the U.S. could lose its leading 5G innovator if Broadcom ever sheds parts of Qualcomm.
A weakened Qualcomm, or one under Broadcom control, could also give Huawei Technologies Co Ltd an opening to further its market-leading position, according to these people. They fear that in 10 years time, U.S. carriers such as AT&T Inc. might have no choice but to use Huawei equipment.
U.S. officials and Western wireless executives fear that if China takes the global lead on 5G and deploys it widely before the U.S., then China will gain the upper hand in subsequent, next-generation technologies. That could even give Beijing--not Silicon Valley--the lead in recruiting the world's best engineers.
Europe led 3G innovation years ago and the U.S. was out front in 4G--the faster technology out there now. China, as well as other Asian countries, appeared ahead in 5G, industry executives say.
Chinese companies have been the most aggressive in submitting proposals to the international consortium that will set 5G standards. According to an early 2017 tally by wireless-technology InterDigital Inc., 34% of such proposals came from Chinese companies, more than any other world-wide region.
Huawei led with 234 submissions. Qualcomm was the most active U.S. player, with 168 submissions, followed by Intel Corp., with 103.
An InterDigital spokesman said its tally of submitted proposals are only a sign of effort, because not all will be accepted. The 5G consortium set some standards in a December meeting, but it was too early to update its tally, the spokesman said.
Broadcom's locale is also a concern, of course. However, Chief Executive Hock Tan, an American, has said it shouldn't be. He has broadcast that he intends to relocate the company from its current home in Singapore to the U.S.
Write to Stu Woo at Stu.Woo@wsj.com
(END) Dow Jones Newswires
March 05, 2018 10:36 ET (15:36 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.