Avago/Broadcom takeover will create a major force in wired comms
Avago’s roots trace back to the original Hewlett-Packard; it was the semiconductor products group of Agilent Technologies when that was split off from HP, and was itself spun out as Avago Technologies in 2005. It has been a serial (if relatively low-key) acquirer of both technology and product lines (fibre and acoustic-wave technology from Infineon, for example) and companies (notably LSI Corp. in 2013). The Broadcom acquisition is by far the biggest such deal in its history.
Avago’s own self-portrait reads; “… is a leading designer, developer and global supplier of a broad range of analog semiconductor devices with a focus on III-V based products and complex digital and mixed signal CMOS based devices. Avago’s product portfolio is extensive and includes thousands of products in four primary target markets: wireless communications, enterprise storage, wired infrastructure and industrial and other.”
Hock Tan, President and Chief Executive Officer of Avago commented, “The combination of Avago and Broadcom creates a global diversified leader in wired and wireless communication semiconductors. Avago has established a strong track record of successfully integrating companies onto its platform. Together with Broadcom, we intend to bring the combined company to a level of profitability consistent with Avago’s long-term target model.”
Analyst IHS says of the merger that, with combined revenues of $14bn (2014 figures) the new entity will immediately become the sixth-largest semiconductor company in the world. IHS’ Dale Ford, vice president and chief analyst, notes, “This is the latest and by far the largest, merger in the semiconductor industry, as major players continue to move in an aggressive way to establish position and profitability in key segments of the industry.” Considering the non-memory sector of the industry, the new Avago will be third only to Intel and Qualcomm, he adds, forming a dominant presence in communications and storage ICs. Outside of these two areas (IHS continues), “Broadcom has a much smaller presence in consumer electronics and industrial electronics and almost no revenue from other data processing and automotive electronics…. The newly merged Avago-Broadcom will dominate the market, commanding 40% of the wired communications IC market, excluding memory. Revenues for this category in 2014 were more than five times larger than the next largest supplier, Intel. The merged company will boost its share of the wireless communications IC market to nearly 8%, ranking fourth behind Qualcomm, Samsung Electronics and MediaTek. With an overall market share of 14% for all communications ICs, the company ranks second, trailing only Qualcomm and ahead of Samsung Electronics.”
Avago anticipates that within 18 months it will realise over $750m “annual cost synergies” (i.e. savings) which, as the bulk of both pre-merger companies’ product are shipped to production in the Asia-Pacific region, likely centre on supply-chain costs.
Avago; www.avagotech.com
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