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Avago, Broadcom union heaps approval

Posted: 29 May 2015     Print Version  Bookmark and Share

Keywords:layoffs  spinouts  analogue 

The series of mergers and acquisitions in the semiconductor industry continues. This time, Avago has expressed interest to buy Broadcom, and once the deal is completed it is expected that there will be little product overlap, a few areas of synergy and a lot of savings in spin-outs and layoffs.

Ironically, Avago is the smaller of the two companies at about $4.3 billion in revenues in its last fiscal year, making it the 14th largest semiconductor company in the rankings of IC Insights. By comparison, Broadcom reported $8.4 billion in revenue in its last fiscal year and is ranked the ninth largest chip company.

A combined company would have nearly $13 billion in revenues, edging it up to about seventh place, ahead of Texas Instruments and below Qualcomm at $19 billion.

Avago and Broadcom have little overlap although both have products that target broad consumer and commercial markets. Avago is strong in analogue products related to optical and wireless communications; Broadcom is more focused on digital SoCs for smart home and data centre markets.

The two no doubt have plenty of overlap in their lists of customers, an advantage for chip buyers seeking to trim down their lists of vendors. Both companies are tightly managed with histories of steadily growing revenues and consistent profits.

Avago's base in Singapore may explain why the smaller company would act as the buyer. It sports a net tax rate of less than 10 per cent thanks to its Asian base, a net benefit to Broadcom, which focuses mainly on price-sensitive mainstream markets.

Avago is well known as an acquisitive company with cash on hand. It bought LSI Inc. in 2013 for $6.6 billion, one of the largest chip mergers at the time. Last year, it snapped up PLX Technology for about $300 million and earlier this month completed a deal to buy Emulex for about $600 million.

With the last three deals, Avago built out its business focused on big data centres, a red-hot market given the rise of Web services and cloud computing. Broadcom further extends that business with its big Ethernet switches and network processors, but also adds a significant mobile consumer component in chips for Wi-Fi routers and smartphones.

- Rick Merritt
  EE Times U.S.

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