FTC Probes Broadcom Over Negotiations With Customers--Update
January 17 2018 - 01:40PM
Dow Jones News
By Dana Cimilluca, Brent Kendall and David Benoit
The Federal Trade Commission is investigating whether
semiconductor company Broadcom Ltd. engaged in anticompetitive
tactics in negotiations with customers, people familiar with the
matter said.
The probe, which has been going on for several months, gathered
steam lately with subpoenas that seek an extensive amount of
information, the people said. Broadcom has changed some of its
contracts so that they now call for customers to buy a percentage
of its output of a certain item rather than an absolute number,
some of the people said. That could potentially raise concerns from
antitrust enforcers worried that the approach could limit other
customers' access to the product, the people said.
The scope of the FTC probe is limited and does not include
Broadcom's wireless segment, according to some of the people.
Broadcom is pursuing a hostile bid for rival smartphone chip maker
Qualcomm Inc.
The investigation may not lead anywhere. The FTC conducts an
array of probes and it's not uncommon for the commission to decide
that no enforcement action is warranted.
If the FTC were to bring a case, it would likely be focused on
forcing changes in Broadcom's conduct since the commission
generally doesn't have the authority to fine.
Regardless of the outcome, the probe is an unwelcome distraction
for Broadcom as it pursues its bid for Qualcomm. Broadcom and its
deal-hungry chief executive, Hock Tan, launched an effort to
replace Qualcomm's board after Qualcomm rebuffed the $105 billion
bid in November. A vote is scheduled for March.
Should Broadcom succeed in overcoming Qualcomm's resistance -- a
big if -- it would need to win approval from antitrust enforcers
around the world and in the U.S., where the FTC would likely be the
agency to review the deal.
The deal was already expected to be a difficult sell to
regulators and the probe could heighten concerns some Qualcomm
customers have raised about a Broadcom takeover of the company.
Broadcom makes a variety of components used in smartphones and
network systems. Combined with Qualcomm, it would form the
third-biggest chip maker by revenue behind Intel Corp. and Samsung
Electronics Co. It would have a dominant position in parts critical
to smartphones and span markets from consumer devices to data
centers.
Authorities in the U.S. and other countries already have had
Qualcomm's patent-licensing business in their crosshairs. The FTC
sued Qualcomm in January of last year alleging it engaged in
unlawful tactics to maintain a monopoly on cellular-communications
chips. Qualcomm has said the suit is based on flawed legal theory
and misconceptions about its business.
Two big Chinese smartphone makers, which together generate more
than 10% of Qualcomm's $22 billion in annual revenue, are against
the possible deal, fearing it could lead to price increases, The
Wall Street Journal reported last week. A third, Xiaomi Corp., also
has reservations. Such opposition could make it more difficult for
Broadcom to win over Chinese regulators.
Broadcom was formed when Avago Technologies Ltd. bought Broadcom
Corp. in 2016 for $37 billion and kept the name.
Write to Dana Cimilluca at dana.cimilluca@wsj.com, Brent Kendall
at brent.kendall@wsj.com and David Benoit at
david.benoit@wsj.com
(END) Dow Jones Newswires
January 17, 2018 13:25 ET (18:25 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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