(Image courtesy of Qualcomm).
(Image courtesy of Qualcomm).
(Image courtesy of Qualcomm).
(Image courtesy of Qualcomm).
(Image courtesy of Qualcomm).

Broadcom Would Run Regulatory Gauntlet to Close Qualcomm Deal

Nov. 10, 2017
Broadcom could be stymied by the same antitrust cops that have cramped Qualcomm's NXP deal and penalized its controversial patent licensing business worldwide.

If Qualcomm accepts its $105 billion bid, Broadcom will likely face a regulatory minefield. It could be stymied by the same antitrust cops that have cramped Qualcomm's $47 billion deal for NXP Semiconductors and penalized its controversial patent licensing business worldwide.

That could make it even harder for Broadcom's chief executive Hock Tan to close an already complex deal, which could take regulators over a year to review. What chance does Broadcom have to escape unscathed after all the trouble Qualcomm has faced in its acquisition of NXP, which sells completely different chips?

The deal would give Broadcom a stranglehold over the supply of wireless chips inside smartphones, cars, and all types of other devices. In addition to basic parts like filters and switches, Broadcom sells Bluetooth and Wi-Fi chips that dovetail with Qualcomm’s 4G and 5G cellular modems and NXP’s secure chips for making mobile payments.

The corporate nesting doll would be the world’s third largest chipmaker by revenue, with 12% of the global market share. It would come into existence as chipmakers acquire each other frantically to amortize the increasing cost of making chips. But on Monday, Broadcom brushed off the potential for regulatory blowback in a letter to Qualcomm’s board.

“We would not make this offer if we were not confident that our common global customers would embrace the proposed combination, and we do not anticipate any material antitrust or other regulatory issues,” Tan wrote.  “A combination of Qualcomm and Broadcom will create a strong, global company with an impressive portfolio.”

And yet Qualcomm has faced scrutiny for buying NXP, the largest maker of automotive chips. NXP’s chief executive Richard Clemmer admits it could take until next year to close the deal as regulators weigh its effect on the chip industry. The deal breezed by American officials, but it has stalled in the hands of European regulators leery of Qualcomm’s licensing business.

"It's hard for me to see how it could get approved from a regulatory standpoint because it would increase the power they have over their smartphone customers,” semiconductor industry analyst Linley Gwennap told Wired. "It's just that European Union believes that giving any smartphone technology to Qualcomm is just waving the cape in front of the bull.”

Qualcomm is fighting the U.S. Fair Trade Commission over allegations that it holds a cellular modem monopoly. In addition, the company has been accused of charging exorbitant fees from customers using its standard 3G and 4G patents. It is stumbling into legal potholes with Apple, which refuses to pay billions in royalties calculated from the selling price of an iPhone.

Over the last year, regulators in South Korea and Taiwan have lost patience with Qualcomm and imposed more than a billion dollars in antitrust fines. The company, whose stock price fell by almost 25% in the months before Broadcom’s bid, also stands accused of holding its chip supply hostage to ferret out richer licensing deals in Europe.

Qualcomm’s regulatory woes would add to Broadcom’s own. Last month, Broadcom appealed to the Committee on Foreign Investment in the United States (CFIUS), which has halted its review of the company’s $5.9 billion deal for Brocade at least three times. The deal still has not closed, and the agency’s delays raise the possibility of it being blocked.

In recent years, the agency has hardened against foreign investments in American chipmakers. But Broadcom could avoid its regulatory gaze if Qualcomm accepts the $105 billion bid since the company plans to move its legal base to the United States from Singapore. Broadcom’s Tan made the announcement in an Oval Office press conference along with President Trump.

It is possible that Broadcom could offload business units to pass antitrust gatekeepers. The company plans to cast off Brocade’s switching and routing business to boost the chances of that deal. Some analysts say that Broadcom and Qualcomm’s Wi-Fi business could be sold to pacify Chinese regulators, which may want something in exchange for approval.

But lots of questions remain about the potential deal, which Qualcomm seems likely to decline. Broadcom’s offer of $70 per share is not considered enough for the San Diego-based chipmaker, whose stock was trading at around $69 less than a year ago. Its stock was trading at $55 before details of Broadcom's bid emerged last week.

Bloomberg reports that Broadcom is preparing a hostile takeover if Qualcomm refuses.

“The potential merger raises significant questions surrounding the difficult takeover of NXP by Qualcomm and much is still to be discerned regarding the value of the Qualcomm patent holdings and its associated lucrative high-margin revenue stream,” said Stuart Carlow, chief research officer for ABI Research, in an email.

Sponsored Recommendations

Frequency Modulation Fundamentals

March 14, 2024
The development of crystal-clear FM communications was an innovation of genius and toil. Utilized today in applications such as radar, seismology, telemetry and two-way radios...

44 GHz Programmable Signal Generator

March 14, 2024
The Mini-Circuits SSG-44G-RC is a 0.1 to 44 GHz signal source with an RF output range of -40 to +17 dBm with fine resolution. This model supports CW and pulsed (? 0.5 ?s) outputs...

Webinar: Introduction to OTA Measurement for mmWave and Sub-THz

Feb. 19, 2024
Join Jeanmarc Laurent, a leading expert from MilliBox, for an exclusive live webinar showcasing a complete Over-the-Air (OTA) testing system setup. In this immersive session, ...

Using a CMT VNA with Socket Server

Feb. 19, 2024
This application note describes use of a software application CMT Socket Server which is distributed and supported by Aphena Ltd. Please email [email protected] regarding purchase...