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Trump Takes Qualcomm Off the Market

Qualcomm was saved from Broadcom’s hostile takeover, but the U.S. chipmaker now needs to convince investors of its own plan

Donald Trump jokes with Broadcom CEO Hock Tan at the White House in November. The U.S. president on Monday told the Singapore-based company to halt its attempt to acquire Qualcomm. Photo: nicholas kamm/Agence France-Presse/Getty Images


Dan Gallagher


Very few companies can count on the direct protection of the President of the United States. For Qualcomm QCOM -2.17% —which can—that protection may have a price down the road.

In an surprise move, President Donald Trump late Monday ordered Singapore-based Broadcom AVGO -0.99% to call off its unsolicited attempt to acquire Qualcomm for $117 billion in cash and stock. The order cited “credible evidence” that Broadcom “might take action that threatens to impair the national security of the United States” if it came into control of Qualcomm.

This came just a week after the Committee on Foreign Investment in the United States, or CFIUS, decided to look into the matter, citing Qualcomm’s role in developing 5G technology—in which the Trump Administration has taken a keen interest.

The order effectively ends a four-month saga that saw Qualcomm, the world’s fourth-largest chip company by annual revenue, targeted by a smaller company with greater momentum.

Broadcom’s market value is about 16% higher than Qualcomm’s despite an annual revenue base that’s about 20% smaller. That’s thanks to a relentless pace of successful acquisitions that has boosted sales, earnings and cash flow while also endearing the company to Wall Street. About 96% of analysts covering Broadcom rate the stock as a buy.

By contrast, some 44% of analysts felt that way about Qualcomm before Broadcom made its first bid for the company in November. Qualcomm gets most of its revenue from chips used to connect wireless devices to networks. But most of its profits come from the royalties it charges on nearly every wireless device sold today.

Visitors look at a Qualcomm display booth at last year’s Global Mobile Internet Conference in Beijing. Photo: Mark Schiefelbein/Associated Press

That business model has enmeshed Qualcomm in countless lawsuits over the years—including a bruising battle currently raging with Apple Inc.

The fight with the tech giant has weighed on Qualcomm’s market value and created the opening for Broadcom. Qualcomm’s stock price had fallen 15% between the filing of Apple’s first suit in early 2017 and Broadcom’s first unsolicited offer later that year. The PHLX Semiconductor Index rose nearly 40% over that time.

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Mr. Trump’s intervention may have thus saved Qualcomm from getting picked off in a time of weakness. But it may also limit options for the future, as the order appears to make it harder for any company to buy or merge with Qualcomm.

That means Qualcomm is on its own, and it will need to make a credible case to investors why it’s better to stay that way. Closing its pending acquisition of chipmaker NXP is vital, as well as eventually reaching a settlement with Apple and Huawei – which is also withholding licensing payments.

Longer term, Qualcomm may also need to figure out how to run its licensing business in a way that involves less courtroom warfare. Mr. Trump solved one of the company’s problems. It’s on Qualcomm to solve the rest.


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Write to Dan Gallagher at dan.gallagher@wsj.com

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