The US Treasury Department is worried that Broadcom's plan to buy Qualcomm could pose a national security threat.
A key concern is that China will take advantage of the proposed merger to steer the development of 5G technologies in its favor, the Treasury Department said in a letter to Qualcomm on Monday.
Broadcom has offered $117 billion to buy Qualcomm, a leading developer in 5G tech. But the Treasury Department expects Broadcom to scale back on long-term investment, including in R&D, if the acquisition goes through.
That doesn't bode well for the US in maintaining its technological competitive edge.
"While the United States remains dominant in the standards-setting space currently, China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover," according to the Treasury Department.
The letter marks the latest twist in Broadcom's ongoing attempts to buy the San Diego-based Qualcomm, which has so far rejected the acquisition offers.
To force a deal, Broadcom had been urging Qualcomm shareholders to elect a new board of directors at a meeting originally scheduled on Tuesday. But the day before, Qualcomm said the vote had to be put on hold; a government committee led by the US Treasury Secretary needed time to investigate a potential merger.
The Committee on Foreign Investment in the United States (CFIUS) has been reviewing the acquisition on a request from Qualcomm. In the past, the secretive committee has repeatedly blocked attempts from Chinese companies to buy US firms usually over national security concerns.
However, Broadcom is not a Chinese company. In November, it decided to move its headquarters form Singapore to the US. Whether CFIUS has jurisdiction on the company's proposed merger with Qualcomm has even been debated among the committee's members, according to The Wall Street Journal.
Nevertheless, the Treasury Department's letter shows that the US government is clearly worried about the security ramifications with any deal. The department pointed to the Chinese company Huawei Technologies as a potential threat; Huawei has a growing 5G patent portfolio and could pave the way for Chinese government control over the sector, it claimed.
The US government, including the Department of Defense, also source sensitive technologies from Qualcomm. Any limitation on those supplies "could have a detrimental impact on national security," the letter said.
The specific security threats weren't mentioned. But the US government has been trying to prevent Chinese state-sponsored spying over cellular networks. In January, US officials reportedly pressured AT&T and Verizon to cancel selling Huawei phones.
As CFIUS continues to investigate the deal, Qualcomm said it's delaying the shareholders' vote to elect new board members by at least 30 days. In response, Broadcom is accusing Qualcomm of trying to stall its acquisition attempts.
"This was a blatant, desperate act by Qualcomm to entrench its incumbent board of directors," the company said in a statement.
Broadcomm added that most of its board of directors and senior management team is made up of Americans. It also contends that the company's plan to buy Qualcomm will no longer fall under CFIUS's review when Broadcom finishes relocating to the US.