Donald Trump is the toast of Scandinavia’s boardrooms
Scandinavian companies, including Nokia and Ericsson, were worried about Broadcom's reputation for slashing research and development spending after doing takeovers
London: Donald Trump was the toast of Nordic boardrooms on Tuesday morning, after he blocked Broadcom Ltd.’s proposed acquisition of Qualcomm Inc.
Telecoms equipment giants Nokia Oyj and Ericsson AB depend on Qualcomm for crucial chipsets used in their networks. The Finnish and Swedish companies each spend about 1% of their revenue on kit from the San Diego-based maker of semiconductors, according to Bloomberg supply chain estimates.
As such, they were worried about Broadcom’s reputation for slashing research and development spending after doing takeovers. It spent an average of 17% of sales on R&D over the past five years, a number dragged higher by the spending of its acquired companies. Over the same period, Qualcomm allocated 22% of revenue, and last year it and its peers (on average) spent 25%. Its R&D spending is second only to Intel in the chip industry.
That matters to Nokia and Ericsson because the more advanced Qualcomm’s technology, the better their own equipment will be.
Crucially, the two companies aren’t just competing against each other. The big threat is Huawei Technologies Co Ltd. The Chinese telecoms giant designs its own chips, through its HiSilicon subsidiary, so far largely for cellphones themselves. It buys other gear from Broadcom. Should Qualcomm’s designs fall behind, that would threaten the Scandinavians’ ability to keep pace with Huawei and, increasingly, Samsung. The South Korean company also makes its own chips and is expanding its equipment business.
Broadcom has form on cutting back development. It reportedly reduced its commitment to parts of the telecoms gear market after it was bought by Avago (which assumed the Broadcom moniker) in 2016.
The fear of US companies under-investing compared to the Chinese may help explain why Trump blocked the deal. Huawei has been excluded largely from the US market for security reasons. Americans are wary of their cell networks being operated with Chinese equipment. Indeed, AT&T Inc. and Verizon Communications Inc. backed away at the last minute from a deal to even sell Huawei smartphones.
Nokia is working already with Qualcomm on important 5G technology. Killing the Broadcom takeover means the Finnish company can bank on that partnership. Maybe they should give Trump a call to voice their thanks. Bloomberg Gadfly
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
MoreLess
First Published:13 Mar 2018, 08:28 PM IST
- Top Gainers
- Top Losers
- 52 Week High