How China’s Huawei Killed $117 Billion Broadcom Deal – Bloomberg


U.S. President Donald Trump’s unprecedented move to block Broadcom Ltd.’s hostile takeover bid for Qualcomm Inc. reflects growing concern about China’s rising economic prowess. At the heart of that decision to scupper what would’ve been the largest technology acquisition in history is Huawei Technologies Co., the world’s third-largest maker of smartphones and, by some reckonings, the biggest producer of telecommunications equipment. Trump was acting on the recommendations of the Committee on Foreign Investment in the U.S., which vets deals for national security risks. The agency suggested that the deal could curtail U.S. investments in chip and wireless technologies, handing leadership to a relatively opaque Chinese company that’s funneling billions into developing next-generation wireless systems.

1. What is Huawei?

The Chinese company has in three decades grown from an electronics reseller into one of the world’s most important communications companies, with leading positions in telecoms gear, smartphones, cloud computing and cybersecurity. With 2017 sales of about 600 billion yuan ($95 billion), Huawei generates more revenue than Home Depot or Boeing — and twice as much as Broadcom and Qualcomm combined.

2. What role did Huawei have in the Broadcom/Qualcomm deal?

None. Huawei — never an aggressive acquirer — had no direct role in the deal negotiations. But it loomed over the talks because of its growing influence.

3. So why the worry about Huawei?

CFIUS is concerned that Broadcom would cut back on R&D funding at Qualcomm, strengthening Huawei at a time when rivals from Ericsson to Nokia are grappling with weak telecoms spending. That theoretically gives Chinese companies such as Huawei and closest rival ZTE Corp. the upper hand in steering the direction of wireless communications development, thereby — so the argument goes — jeopardizing U.S. national security. CFIUS’s concerns over the deal are said also to stem from Broadcom’s ties to Huawei, which was blacklisted in 2012 along with ZTE when the U.S. House Intelligence Committee cited security risks posed by the companies.

4. What’s the link between Broadcom and Huawei?

Huawei uses Broadcom’s chips in networking products such as switches that direct data traffic between connected computers. Qualcomm also works with Huawei. The two said on Feb. 21 they completed testing on technology that advances faster 5G mobile services. Under one envisioned scenario, wireless carriers may be forced to turn to Huawei or other Chinese companies for cutting-edge telecoms gear. That’s unacceptable for a U.S. government that, concerned about the security of Huawei’s gear, has already blocked the sale of the Chinese company’s smartphones on American carriers’ networks.

5. Are there broader implications for Chinese companies?

The president’s order is the latest sign of Trump’s tough stance on foreign takeovers of U.S. technology, and dovetails with a broader move to contain China on trade and deal-making. Government officials and industry executives have long harbored suspicions that the closely held Huawei works primarily for Chinese government interests, especially as it sells increasing amounts of critical telecoms infrastructure to Europe, Africa and the Middle East.

6. What exactly is Huawei’s connection with Beijing?

Founded in 1987 by Ren Zhengfei, a former People’s Liberation Army engineer, Huawei has always enjoyed favorable treatment from a government that — like the U.S. — remains wary of employing too much foreign technology for vital communications. In a report released by the U.S. Permanent Select Committee on Intelligence report in 2012, Huawei and ZTE were tagged as potential threats to security interests. The report questioned Huawei’s ties with the Communist Party and — after multiple interviews including a sit-down with Ren himself — it concluded that Huawei failed to properly explain that relationship. Huawei has repeatedly denied those accusations and says it’s owned by Ren and its own employees. Chinese government policies enacted in the past year seen as favoring local providers have only intensified suspicion. It remains unclear what support — financial or political — Huawei gets from Beijing, if any. In recent years, the company has begun releasing results, spent more on marketing and engaged foreign media in an effort to boost transparency.

7. Will Trump’s move give the U.S. a lead in 5G?