Avago, Broadcom Hail Merger Deal as ‘Landmark’ in Semiconductor Industry History
Though a combined Avago and Broadcom will bear the Broadcom name, Broadcom shareholders will control only 32 percent of the combined entity, Avago Chief Financial Officer Tony Maslowski said Thursday on an investor call to discuss his company's Broadcom acquisition. The $37 billion cash-and-stock deal is expected to close by the end of Q1, Maslowski said.
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Combining Avago and Broadcom “creates a global diversified leader in communications semiconductors,” Avago CEO Hock Tan said on the call. The combined annual revenue of $15.1 billion will rank Avago-Broadcom third among the world’s biggest chipmaking powers behind Intel ($55.9 billion) and Qualcomm ($27.5 billion), Tan said.
“The proliferation of LTE and other wireless devices around the globe is driving an increase in the amount of semiconductor content per device,” Tan said. That proliferation also has caused “an explosion in the amount of data traffic running through public and private data centers,” he said. “We believe we are in the beginning stages of enhanced networking within the home as people use their wireless devices to connect to various entertainment, security and comfort functions that are all driven by pervasive broadband access,” Tan said of the smart home. Acquiring Broadcom “will allow us to leverage these secular growth trends more deeply across all of our business segments to drive our financial performance,” he said.
The deal is a “landmark” in the history of the semiconductor industry, Broadcom CEO Scott McGregor said on the call. “The industry is changing,” McGregor said, and for chipmakers to be successful, “significant size and scale are becoming increasingly important.” Combining Avago and Broadcom “makes us better prepared for that next step,” he said. “We are very proud that the entity that emerges from the combination of Broadcom and Avago will carry the Broadcom name. The new Broadcom will build on the strengths of both companies to emerge as a leader in both the communication markets as well as the broader semiconductor industry.”
There’s “very little, if any, overlap” in the Avago and Broadcom product portfolios, Tan said in Q&A when asked if he foresees Avago having to divest any businesses to win regulatory approval of the Broadcom buy. “We’re both fairly substantial companies in the semiconductor space, but the overlap is zero, minimal at best, even though we may serve common strategic customers,” Tan said.
Avago and Broadcom are in the “early days” of their deal, so it’s “hard to get a really good assessment” of possible revenue "synergies," McGregor said. “But one of the things we did observe when we were going through talking about our businesses with each other is how often we appear in the same kinds of boxes and same kinds of devices.” For example, Broadcom might commonly supply a system-on-a-chip component for a device in which “Avago’s in the connectors,” he said. “There’s an opportunity to look for those kinds of synergies and also to bring a lot more value to our customers in providing more complete solutions.”