Broadcom to Acquire Brocade for $5.5 Billion

By | November 2, 2016

The latest reports tell us that Broadcom Ltd has announced to buy the leading network gear maker Brocade Communication Systems. The deal will cost $4.4 billion to Broadcom which will help them to expand their fiber network as well as data storage business.

For those who do not know, Broadcom is a Singapore-based chipmaker company that was previously known as Avago Technologies. On the other hand, Brocade is a California-based firm that is into networking hardware manufacturing, storage items and software.

According to Broadcom, they plan to integrate the acquired company’s fiber channel networking products that are basically used in most of the data centres and then sell the IP networking business.

On Friday, Brocade’s shares were up by 9 percent while Broadcom’s share were up by 1.5 percent. Also, there was 46.7 percent premium on $12.75 per Brocade’s share. By Tuesday, Brocade’s shares rose by 30 percent.

One can see the rapid consolidation in the chip market where every other chipmaker is looking to capture the major area of the market, mostly related to cars and embedded devices, with Broadcom as one of the biggest contenders.

The company grew rapidly after Hock Tan became the CEO ten years ago. He turned the company from a small chip making factory into a manufacturing giant with market share of about $67 billion.

“We believe the deal is highly complementary to Broadcom’s existing enterprise storage offerings and boosts its exposure to the high-growth data centre market, said CFRA Research Angelo Zino.

On the other side, another chipmaker giant, Qualcomm signed the biggest chip deal ever as they agreed to acquire NXP Semiconductors for $38 billion. This deal is definitely going to help them in becoming the largest producer of automotive chips in the world.

Some of the Broadcom’s biggest customers are HPE, Cisco Systems Inc and Intel Corp. And they are planning to sell its IP Networking business because of competitive overlap with some of their premium customers. The IP Networking business include a data center switching, wireless networking and software networking solutions.

Since, there are already many big companies like HPE and Cisco wishing to head in the field, “I don’t think there will be a lack in buyers for the IP business”, said Drexel Hamilton analyst Cody Acree to Reuters.

Broadcom also said that they will take the Brocade’s debt of $400 million and fund the deal with available cash and debt.

Source: Reuters