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New Broadcom bares initial job cuts

Posted: 29 May 2015     Print Version  Bookmark and Share

Keywords:M&A  iPhones  Ethernet  Broadcom 

Integration opportunities and counter offers

One product area to watch in the merger is Avago's Film Bulk Acoustic Resonator (FBAR) filters, a high performance version of bulk acoustic wave filters. In smartphones, the company is in the process of integrating these discrete parts into RF front-end modules that include power amplifiers, Tan said.

The rise of LTE is driving the integration. "The general trend in high-end smartphones is the number of frequency bands continue to increase fairly linearly from one generation to the next, so we see significant increase in our [semiconductor] content," Tan said.

Avago will shift its fab that makes the products from six- to eight-inch wafers early next year to lower wafer costs about 10 per cent and increase capacity for sales as LTE rises in China. Whether Broadcom can leverage that effort now that it has exited the cellular base band business and re-focused on Wi-Fi/Bluetooth chips is unclear.

Avago Broadcom

The merger presents a wide array of such questions for engineers from the two companies. In networking, the variables are even wider among Broadcom's Ethernet switches and network processors and Avago's serdes, interconnect and storage components many only recently acquired from Emulex, LSI and PLX.

Tan said he doesn't expect to have to divest any operations for regulatory approvals given the "nearly zero" product overlap between the two companies. However, he said he will review the Broadcom portfolio in detail after the close to determine whether to sell off portions to maintain corporate profit goals and gain a short-term windfall as he did with selling off networking and flash storage parts of LSI to Intel and to Seagate.

After the close, Tan promised to review Broadcom's product lines in detail for possible sell offs. "We will apply the same criteria as in the past when we look over the portfolio," he said.

Qualcomm or Intel could make a counter offer for Broadcom as news of the proposed merger ripples through the industry. "It would be hard for anyone to match" the Avago deal, "but it's good to be paranoid," Tan said.

Indeed, Samueli's decision to become CTO of the merged company under the Broadcom name, probably cements the deal from a counterattack.

Avago intends to fund the $17 billion of cash in the deal from a combination of cash-on-hand from the combined companies and $9 billion in newly committed debt financing from a consortium of banks.

The transaction has been unanimously approved by the boards of directors of both companies, as well as a special committee of the independent directors of Broadcom. Samueli and Broadcom co-founder Henry Nicholas (who will become an advisor to Tan in the merged company) signed agreements to vote to approve the transaction. The deal is still subject to regulatory approvals as well as the approval of Avago's and Broadcom's shareholders.

Avago also reported fiscal second quarter revenue of $1.61 billion and profits of $344 million, both down slightly from the prior quarter. It forecast third quarter revenue at $1.74 billion, up six per cent.

- Rick Merritt
  EE Times U.S.

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