US President Donald Trump has blocked microchip ma?ker Broadcom’s $117 billion takeover of rival Qualcomm amid concerns that it would give China the upper hand in the next generation of mobile communications, or 5G.
5G networks, now in the final testing stage, will rely on denser arrays of small antennas and the cloud to offer data speeds up to 50 or 100 times faster than current 4G networks and serve as critical infrastructure for a range of industries.
Deals to start building mass-market 5G networks are still largely a year away, but by 2025, 1.2 billion people are set to have access to 5G networks – a third of them in China, according to the global wireless trade group GSMA.
Unlike the upgrades of cellular standards 2G in the early 1990s, 3G around the millennium and 4G in 2010, 5G standards will deliver not just faster phone and computer data but also help connect up cars, machines, cargo and crop equipment.
The Committee on Foreign Investment in the United States (CFIUS), which vets acquisitions of US corporations by foreign companies, sa?id the Broadcom takeo?ver risked wea?k?ening Qualcomm, wh?ich wo?uld boost China over the US in the 5G race.
Acquiring Qualcomm would represent the jewel in the crown of Broadcom’s portfolio of communications chips, which supply wi-fi, power management, video and other featu?res in sm?artph?ones alongside Qualcomm’s core baseband chips - radio modems that wirelessly connect phones to networks.
The concern is that a takeover by Singapore-based Broadcom could see the firm cut research and development spending by Qualcomm or hive off strategically important parts of the company to other buyers, including in China, US officials and analysts have said.
5G promises to open up the clubby world of telecom equipment by creating openings for a far wider range of players in hardware, software and semiconductors, many of them from Asia, increasing the dependence of Silicon Valley on foreign players.
Before the technology becomes a reality, two transitions need to take place.
Mobile operators have to upgrade their networks with 5G gear made by the likes of Huawei and ZTE of China, Sweden’s Ericsson and Finland’s Nokia. And phone makers need to make handsets with built-in 5G radios ready to hook up to netwo?rks. Qualcomm is the dominant player in smartphone communications chips, ma?king half of all core baseband radio chips in smartphones. It is one of the last big US technology companies with a major role in mobile communications hardware.
Most other baseband chips come from Asia. MediaTek of Taiwan holds about one quarter of the market, while Samsung Electronics and Huawei – two big smartphone makers –develop chips for their own devices. Huawei does through a subsidiary known as HiSilicon.
Its dominant position in 5G comes from its mastery of two areas: getting its pat?ents adopted in what are kn?own as standards and then selling the chip designs that work with those standards. The standards are set by a gl?o?bal body to ensure all ph?ones work across different mobile networks, and whoever’s essential patents end up making it into standard stands to reap huge royalty licensing revenue stre?ams.
Qualcomm has landed a number of these foundational patents, which means that both handset makers and telecommunications gear makers will have to pay it licensing fees. It dominated standards setting in 3G and 4G wireless and looks set to top the list of patent holders heading into the 5G cycle.
Huawei, Nokia, Ericsson and others are also vying to amass 5G patents, which has helped spur complex cross-licensing agreements like the deal struck late last year Nokia and Huawei around handsets.