Broadcom has started a new offensive in its effort to take over Qualcomm, promising to invest USD 1.5 billion to train engineers in the US and make the country a leader in 5G technology. This follows news that the US government is investigating the company's proposed takeover for national security concerns.
In a statement, Broadcom said the Qualcomm takeover is aimed at increasing the company's focus on 5G cellular technologies. If the takeover succeeds, Broadcom pledged to maintain the R&D resources Qualcomm devotes to 5G and innovation in future wireless standards and focus the R&D spend on "those critical technologies that are essential to the US".
Opening for Chinese
The statement appears to address concerns expressed in a letter released by Qualcomm from the US Treasury about the investigation being conducted by the Committee on Foreign Investment in the US into the Broadcom deal. The Committee is particularly concerned that if Qualcomm does not maintain its position as one of the top investors in semiconductor research, it could lose its leading position in helping to determine international industry standards.
Losing this key role in standards-setting could pose a threat to US national security and also open up a place for China to fill with its own wireless companies, such as Huawei, CFIUS said. The US government has already expressed repeated concerns about Huawei and ZTE, moving to close off their access to the American market, and the fear is Broadcom could allow the Chinese to take the lead on setting 5G standards.
More acquisitions than R&D
According to CFIUS, the statements from Broadcom that it would take a "private-equity" style approach to the acquisition suggest it would reduce long-term investment in order to focus on short-term profitability. The USD 106 billion in debt financing arranged by Broadcom would be the largest corporate acqusition loan ever, the letter noted, putting further pressure on the company to boost profitability in order to service its debt. Broadcom's numerous acquisitions in recent years have already reduced R&D spending, the letter claims, citing "press reports" that Broadcom has spent six times as much on acquisitions as R&D in the past dozen years.
To help allay concerns it would reduce spending on technology, Broadcom said it would create a new USD 1.5 billion fund "with a focus on innovation to train and educate the next generation of engineers in the US", the company said, adding this will ensure America's lead in future wireless technology.
Broadcom also underlined its roots in the US, saying it is "in every important respect an American company", built from divestments and acquisitions from companies such as HP, AT&T and Brocade. The company reiterated that it expects to complete the process of redomiciling to the US from Singapore no later than 06 May.
New licensing model
The company also reiterated that it sees a need for Qualcomm to change its "predatory and anticompetitive" behaviour, with a new licensing business model that can support long-term investment. The CFIUS letter noted that Broadcom has not elaborated on how it plans to change Qualcomm's licensing model, but appeared to side with Qualcomm's claim that its current model is needed to support R&D funding. "Changes to Qualcomm's business model would likely negatively impact the core R&D expenditures of national security concern," the letter said.
