President Trump has blocked the proposed $117 billion takeover of Qualcomm by Broadcom, citing concerns that the deal could pose a risk to national security.
The proposed landmark deal between two of the world's largest chipmakers would have likely been the largest takeover in tech history, but according to a presidential order released on Monday, there was evidence that Broadcom "might take action that threatens to impair the national security of the United States".
Semiconductor firms are racing to develop the latest 5G chips for future wireless networks, and US-based Qualcomm and China's Huawei are widely regarded as leaders in this field. However, Broadcom is known for its track record of cutting research and development, and concerns exist that a merger could threaten the R&D output of Qualcomm and allow Chinese companies to pull ahead.
While the Singapore-based Broadcom conducts the majority of its business in the US, and is even looking to move its operations to that market, reports suggesr that Trump's decision is an attempt to thwart China's bid to gain market advantages by doing deals with US firms.
"Given Broadcom's business practices, the worry is that they will cut investment significantly, particularly in the 5G roadmap, weaken Qualcomm, as well as the US position and allow Huawei, a Chinese company to take the lead," said Stacy Rasgon, chip analyst at Bernstein, speaking to CNBC.
However, it's also possible that Trump's decision may also be an attempt to maintain healthy market competition in the US, given that a takeover would have created the world's third-largest semiconductor firm behind only Intel domestically, and Samsung internationally.
Rumours circulating at the weekend suggested Intel was also looking at potentially bidding in an attempt to block Broadcom from signing a deal that would have threatened its market position.
Broadcom has said it is reviewing the presidential order, adding that it "strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns".
Qualcomm had previously rejected Broadcom's bids on the grounds that they significantly undervalued the company and fell short of regulatory antitrust requirements, although publicly the company remained open to a potential deal.
An investigation into the deal by the Committee on Foreign Investment in the United States (CFIUS) announced last week, was - claimed Broadcom - initiated following a complaint by Qualcomm directly.
Qualcomm's executive board secretly approached the CFIUS to review the takeover deal in order to block the deal and protect the company from an acquisition, Broadcom said at the time, and later corroborated by sources speaking to TechCrunch.
As part of the presidential order, Qualcomm has been told to reconvene its 2018 annual shareholder meeting as early as possible, after delaying it for the CFIUS investigation. Any Broadcom nominees that would have been present as part of the deal will be barred from attending. Other than a statement acknowledging the order, Qualcomm has yet to comment specifically.
CFIUS announced in January that it would no longer be supporting a $1.2 billion deal which would have seen the takeover of US-based money transfer business Moneygram by Chinese firm Ant Financial, citing changes to the political landscape.
