More American Jobs? Broadcom Deal Might Mean the Opposite
Posted December 11, 2017 10:54 p.m. EST
Last month, President Donald Trump stood in the Oval Office under a portrait of Andrew Jackson and announced that Broadcom, a semiconductor company based in Singapore, would be moving its headquarters back to the United States.
“I want to thank you very much for choosing us,” Trump said, boasting that Broadcom has 7,500 workers in the United States and noting that some of those workers, from a plant in Pennsylvania, were standing behind him. “We’re looking forward to seeing that number grow very substantially, which it is now anticipated to do.”
He added that he was thrilled to see Broadcom’s $20 billion in revenues “come back to our cities, towns and American workers.”
Broadcom’s chief executive, Hock Tan, then took the podium and declared: “Thanks to you, Mr. President, business conditions have steadily improved.” He praised the president’s proposed tax overhaul as a policy that would “level the global playing field'’ and make a move to the United States more advantageous.
It was an impressive storyline. The president was able to get a big headline for bringing a foreign company back to the United States and Broadcom was able to capture the loyalty of an important ally, all with the Oval Office as a backdrop.
Yet it was only theater.
Within 24 hours — for those paying attention — Broadcom’s real motivation emerged: The company was planning to mount a $100 billion bid for rival chip maker Qualcomm in what would amount to the largest hostile takeover of technology company in history.
The reason for Broadcom’s sudden move back to the United States was clear: Given Trump’s aversion to foreign companies, there was no way Broadcom would ever receive regulatory approval for a takeover of one of the crown jewels of Silicon Valley if it were based anywhere but here. After all, Qualcomm’s chips are inside virtually every major U.S. device, starting with Apple’s iPhone.
So Broadcom played to Trump’s soft spot — bringing companies back home. But the result may not be what Trump is envisioning — a Broadcom takeover of Qualcomm would most likely cost thousands of jobs, doing the very opposite of what the president said would happen.
Some of those workers who stood behind Trump in the Oval Office could very well end up on the chopping block.
If there is any question about Broadcom’s job killing ambitions, look no further than its own news release, which said “the combination of our two companies and associated synergies will be accretive to Broadcom’s earnings.”
Notice the word “synergies”? That word, a throwback to the 1990s merger days, has returned, but no one has forgotten what it is a euphemism for: cost-saving layoffs. Analysts have estimated that the savings from such synergy in Broadcom’s case would most likely be about $1.5 billion.
Qualcomm has about 33,000 employees worldwide; about 10,000 of them based in San Diego. Broadcom has nearly 16,000 employees worldwide, nearly half of them in the United States.
When Broadcom merged with in Avago in 2014, it said it expected $750 million in “synergies.” At the time, Broadcom had 10,650 employees and Avago 8,200, for a total of 18,850 workers. Yet by 2016, after the two companies had integrated (and accounting for a divestiture that included 430 employees), the total head count was 15,700. In other words, 2,700 people lost their jobs.
By that math, considering Broadcom said it could achieve twice those savings in a deal with Qualcomm, some 5,400 people could lose their jobs — a good portion of the entire domestic head count at Broadcom.
Broadcom has made a business model of acquiring other companies, and their technology, and laying off employees. Some analysts describe the company as a “roll-up” — a company that keeps rolling up more companies.
Qualcomm has been one of technology’s great innovators, helping to establish many of the mobile telephone standards like LTE and the coming 5G. It has one of the largest research and development budgets in the world, spending $5 billion last year alone. Over the past decade, it has spent nearly $40 billion.
Tan of Broadcom has boasted that he plans to spend $3 billion “in research and engineering.” Tan has been given high marks for managing the portfolio of Broadcom assets effectively, but he has never been known for industry-changing innovations.
And while the sound bite about Broadcom’s bringing its $20 billion in revenues back to the United States sounds great, it isn’t so clear it will happen immediately — or ever. About half the company’s revenues come from its Chinese partners. It is impossible to think the company won’t have to continue to invest there given that’s where much of the growth in the world is taking place.
Qualcomm has rejected Broadcom’s overtures, calling the bid an opportunistic effort to buy the company on the cheap. Qualcomm’s stock has been under pressure because it has been engaged in a patent lawsuit with Apple, which has argued that Qualcomm is trying to gouge it for using its chips in its phones and has threatened to use Intel chips instead. Broadcom, in turn, has hinted that if it were to succeed in its bid for Qualcomm, it would reach a settlement with Apple.
The deal, which is already complicated, was made more so Monday when Elliott Management, an activist hedge fund, argued that a planned deal by Qualcomm for NXP — which had been moving ahead despite the Broadcom bid — undervalues NXP, creating new questions about the fate of that transaction. If Qualcomm were to raise its offer for NXP, it could make itself less attractive for Broadcom.
Even if Broadcom doesn’t end up merging with Qualcomm, it is unimaginable that it won’t try to acquire other American companies, which may make its decision to redomicile ultimately make more sense.
If Broadcom was not intending to repatriate to the United States, you can only imagine the early morning tweetstorms we would have read from Trump denouncing the hostile bid.
But at least for now, he hasn’t said a word.