Chipmaker Avago Technologies is buying Broadcom Corp. for $37 billion in a cash and stock transaction. When the acquisition is complete, the merged company may not be the largest semiconductor company in the world but it will be an industry behemoth with annual revenues of about $15 billion.
The merger essentially pairs Broadcom’s engineering expertise with Avago’s technology heritage, which rests in HP, AT&T and LSI logic. If it passes Federal Trade Commission scrutiny, the merger will go down in history as a landmark deal in the semiconductor industry.
Hock Tan, President and CEO of Avago, said the combination of his company with Broadcom would create a “global diversified leader in wired and wireless communication semiconductors.” Avago has a strong track record of integrating companies onto its platform, including CyOptics, Javelin Semiconductor, and Agilent’s Semiconductor Products Group.
The New Broadcom
In the announcement, Henry Nicholas, co-founder and past CEO of Broadcom, talked about the demanding, execution-oriented culture he and Henry Samueli, co-founder, Chief Technical Officer and chairman of the board, developed. He said it was not guaranteed to mesh with the average technology company -- but it was a culture that made it possible for the company to post exponential growth and spread its tentacles in the broadband communications market.
“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,” Nicholas said.
The merger is timely. Worldwide semiconductor revenue totaled $339.8 billion in 2014, a 7.9 percent increase from 2013 revenue of $315 billion, according to market research firm Gartner Inc. The combined revenue of the top 25 semiconductor vendors increased 11.7 percent, which was more than the growth of the overall industry. The top 25 vendors accounted for 72.1 percent of total market revenue, up from 69.7 percent in 2013.
Broadcom ranked eighth on Gartner’s list with 2.2 percent of the market. Intel, Samsung, Qualcomm, Micron Technology, SK Hynix, Toshiba and Texas Instruments ranked about it. Nevertheless, Scott McGregor, President and CEO of Broadcom, said he is convinced his customers will appreciate the promised end result of the merger: access to a greater breadth of technology and product capability.
Will Broadcom Keep Growing?
The boards of directors of both companies unanimously approved the deal, which is expected to close by the end of the first calendar quarter of 2016. After the ink dries, Tan will remain president of the merged company but under a rebranding effort the company will be called Broadcom Limited.
We caught up with Jeff Kagan, an independent technology analyst, to get his thoughts on the massive acquisition. He told us Broadcom has earned a special place in the investment world.
“Broadcom started out years ago with a technology that let us get Internet service over our traditional phone lines,” Kagan said. “Then they successfully transformed their business and now make technology for our smartphones.”
Broadcom's evolution has kept the company in the driver’s seat over the past few decades. The company recognized that its opportunity, while strategic at the time, was limited, Kagan explained. As the traditional ISP growth wave grew, crested, then fell, Broadcom created the next growth wave in the smartphone world, he said.
“Broadcom has been a successful company and Avago hopes to continue that trend,” Kagan said. “Can Broadcom continue its growth under new leadership is the next question. We'll have to just wait and see.”