The acquisition this week of Sand Video by Broadcom is just about as logical as you can get in the M&A business. Sand Video had a lead, albeit only a small one, in the silicon for the video encoding market, and Broadcom operates as market leader or close in every other broadband and communications chip market.
The price of just $77.5m, most of it in Broadcom shares and $7.4m in cash, is a steal, and yet the shareholders of Sand Video seem to be getting their money's worth given that it has had only a little venture capital funding.
Faultline named Sand Video as one of its top 50 start-ups back in August last year after it launched the first silicon for the H.264 compression standard that is expected, with Windows Media 9, to drive next generation video compression.
But it is likely that new entrants, including larger firms such as Texas Instruments, LSI Logic and specialists such as Equator Technologies, will soon be snapping at Sand's heels and it may well need the protection of a larger parent organisation.
Sand supports H.264 - also known as MPEG 4 Part 10 Advanced Video Coding - on its SV-IP01 chip and the chip core design is sold either in chip form or as a piece of intellectual property for others to drop into a chip they are building which includes other functions. Sand Video was funded by an $8m equity investment in November 2002, led by Baker Capital, which included Navigator Technology Ventures and a number of private investors from the CommonAngels of Boston.
The Broadcom range post merger will mean potential one-stop shopping for chips for digital TVs, cable, satellite and IP set-top boxes, digital video recorders (DVRs), high definition DVD recorders and players, and video conferencing.
The Sand Video team with be merged into the existing Broadcom global digital video team. Broadcom will pay roughly $70.1m in the form of 1.666m of its shares plus and $7.4m in cash.
Broadcom says that it expects to record a one-time charge for purchased in-process research and development expenses related to the acquisition, in its second fiscal quarter, ending 30 June.
Broadcom is already strong in other broadband chip areas such as digital cable, set-top boxes, HDTV, DSL modems and residential gateways, high-speed transmission chips for local, metropolitan, wide area and storage networking, home and wireless networking, cellular and terrestrial wireless communications and Voice over Internet Protocol (VoIP) gateways.
The Broadcom move is almost certain to create a land-grab for video compression companies, many of which are under-funded and private and which would welcome an approach. One company, Conexant, which has just acquired its way to the same proportions as Broadcom acquiring Globespan Virata just after it had taken on Wi-Fi market leader, Intersil, may well feel compelled to cover such a move and make its own acquisition.
© Copyright 2004 Faultline
Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of events that have happened each week in the world of digital media. Faultline is where media meets technology. Subscription details here.
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