U.S. regulators have cited concerns over China's influence on the 5G standard-setting process in announcing an investigation into Singapore-based Broadcom's hostile takeover of Qualcomm.
The letter raised red flags about a Broadcom takeover possibly weakening Qualcomm long-term competitiveness in telecommunications technologies and standard setting - opening the door for Chinese companies such as Huawei to become dominant players in upcoming 5G networks.
Broadcom also took a swipe at Qualcomm's licensing business, which is a subject of dispute between the companies. The company reiterated that it expects to complete the process of redomiciling to the U.S. from Singapore no later than 06 May.
Qualcomm's sale to Singapore-based Broadcom could hurt the chip maker's competitiveness by reducing research and development, which would threaten USA security, treasury said in a 5 March letter released by Qualcomm on Tuesday.
Broadcom has a message for USA regulators: We'll make 5G technology a priority and invest in America if you let our bid for Qualcomm go through.
"While the United States remains dominant in the standards-setting space now, China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover", the letter said.
Broadcom said Wednesday, however, that it would maintain research and development resources at Qualcomm and would focus spending on critical US technologies.
The firm said it expects 5G to take off faster than 4G, hitting 2.6 billion connections by 2025, more than 20 percent of all mobile subscriptions. "This measure will afford CFIUS the ability to investigate fully Broadcom's proposed acquisition of Qualcomm". Broadcom has not been specific in its plans for patent licensing other than to say the business model is broken.
An investigation by the CFIUS into a deal that has been proposed, but not yet completed, is highly unusual, and underscores the US' concerns about maintaining its dominance in semiconductors in the face of advances by China. The debt Broadcom would need to finance the deal would increase pressure to earn short-term profits at the expense of spending on research and development, according to the letter.
"Broadcom is pledging to create a new $1.5 billion fund with a focus on innovation to train and educate the next generation of engineers in the U.S. This will ensure America's lead in future wireless technology", the company said in a statement. Broadcom's shares were up slightly at $247.90.