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Chip chef Avago gobbles up Broadcom for $37 BEEEELLLION

17bn in greenbacks – the rest in shares

As rumored this week, chip designer and supplier Avago is buying chip designer Broadcom in a cash-and-stock deal worth $37bn (£24bn). Broadcom is probably best known to Reg readers as the biz behind the BCM system-on-chips found in the Raspberry Pi and various other gizmos.

The combined biz will rename itself Broadcom Ltd as it continues its consolidation depredations in the semiconductor industry. Avago has headquarters in San Jose, California, and Singapore. Broadcom is based in Irvine, California.

Ironically, Avago earlier bought Emulex which Broadcom tried to buy in a hotly contested hostile takeover in 2009.

That deal failed, and with Emulex never living up to its hyped management expectations, it fell into Avago’s hands in February this year. Now it is being brought together with Broadcom but inside Avago.

The combined Avago-Broadcom company is valued at a massive $77bn (£50bn), and says it is the world’s leading diversified communications semiconductor company. It will certainly overtake Texas Instruments with its $58.2bn (£38bn) capitalization.

The acquisition is being bankrolled by a combination of Avago shares plus $17bn in cash including $9bn in new debt financing from a consortium of banks.

Avago’s basic history and acquisitions:

  • 1961: HP starts up a semiconductor products division.
  • 1999: This division separates out as Agilent Technologies.
  • Oct 2005: Private equity groups KKR and Silver Lake Partners buy Agilent for $2.6bn, and form Avago Technologies..
  • Oct 2008: Avago buys Infineon Technologies' bulk acoustic wave business for $23m.
  • Apr 2013: Avago buys CyOptics for $400m.
  • Dec 2013: Avago buys LSI for $6.6bn.
  • Aug 2014: Avago claims it’s 9th largest semiconductor company.
  • Feb 2015: Avago gobbles Emulex for $606m.
  • May 2015: Avago gobbles Broadcom for $37bn.

Henry Nicholas, a cofounder and ex-CEO of Broadcom, said in a canned quote: “In Avago, we have found a culture and a management team that embody the best of the philosophies on which Broadcom was founded, together with a fast-paced, no-nonsense, process-driven business culture that we need to take our combined company to the next level. I am confident that, under the visionary leadership of Hock Tan, the combined company will realise its potential to be the world’s greatest semiconductor company.”

To be the world’s greatest semiconductor company? Is this just a newly enriched cofounder’s bombast, or does he mean it, bearing in mind that Intel exists with a market capitalization of $161.3bn?

Acquired Broadcom’s cofounder, chairman and CTO Henry Samueli becomes CTO for the combined company, and will join the Broadcom Ltd board. Nicholas gets a strategic advisory role, reporting to Broadcom boss Hock Tan who becomes CEO of the whole show.

Separately, Avago reported its fiscal results for the second quarter of 2015: revenue was $1.6bn, a decrease of 1 per cent from $1.64bn in the previous quarter and an increase of 130 per cent from $701m in the same quarter last year.

Net income was $344m, down from the $351m from the prior quarter, and more than double the $158m a year ago.

Broadcom Ltd’s management expects to save $750m in costs in the coming 18 months.

The combined company will be, Stifel MD Aaron Rakers says, an end-to-end provider of Ethernet connectivity chips and products, and a vertically integrated supplier of Fibre Channel HBAs and ASICs. This implies competition for QLogic, the other HBA and storage CNA supplier, especially as Avago supplies QLogic with its Fibre Channel ASICs through a long-term agreement, from its acquired LSI business.

QLogic bought some Ethernet technology and blueprints from Broadcom for $147m in February last year. A part of that deal was that its Ethernet ASICs are bought exclusively from Broadcom, now Avago.

Q now thinks it has a 26 per cent share of the $800m combined 10GbitE adapter and ASIC market, with Intel having around 50 per cent, Avago-Emulex at 13 per cent, and Mellanox at 3 per cent.

It seems to El Reg that QLogic is now strategically threatened and could look for a white knight – such as Intel, perchance?

Avago does not make general-purpose processors, but Broadcom does: it has a host of ARM-compatible system-on-chips. We may see Intel consider making acquisition moves to strengthen its position in the low-end, embedded world. There could also be consolidation elsewhere in the semiconductor industry as smaller players combine to strengthen their position versus Avago-Broadcom.

The deal should close by the end of March 2016. It is subject to regulatory approvals, of course. ®

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