Avago Reveals $37 Billion Blowout Acquisition Of Rival Broadcom

Chipmaker Avago Technologies on Thursday said it will acquire rival semiconductor manufacturer Broadcom in a $37 billion deal.

The buyout marks the latest in a string of consolidation moves in the semiconductor industry, as vendors grapple with their role in the rising popularity of the client computing, mobility and Internet-of-Things markets.

"Today's announcement marks the combination of the unparalleled engineering prowess of Broadcom with Avago's heritage of technology from HP, AT&T, and LSI Logic, in a landmark transaction for the semiconductor industry… together with Broadcom, we intend to bring the combined company to a level of profitability consistent with Avago's long-term target model," said Hock Tan, president and CEO of Avago, in a statement.

[Related: Partners Cheer As Altera Intel-Buyout Talks Reportedly Resume]

When reports of the buyout first emerged on Wednesday, Broadcom's shares rose 21 percent to $57.15, while Avago's shares rose 8 percent to $141.49, according to the Wall Street Journal.

According to Broadcom, the deal is expected to close by the first quarter of next year. Once the transaction has been completed, Broadcom will adopt the name Broadcom Limited.

Broadcom, an Irvine, Calif.-based fabless semiconductor company, manufactures networking ICs for data, voice and video applications in the wireless and broadband communications space. The company offers a variety of out-of-the-box connectivity platforms for connected devices and the Internet of Things, such as home automation, beacons and connected cars.

Avago, which has portfolios targeting wireless communications, enterprise storage, wired infrastructure and industrial markets, could further expand its offerings with Broadcom's Internet-of-Things platform.

"This feels like an Internet-of-Things play. We might not be seeing a lot of success stories yet with the Internet of Things, but it's coming," said Todd Swank, senior director of product marketing at Equus Computer Systems, a Minnetonka, Minn.-based system builder. "Companies like Intel are doing everything they can, including acquisitions, to enhance their products and keep up with IoT."

Based in Singapore, Avago Technologies has acquired up to five companies, including its purchase of storage components provider LSI Corp. in 2014 for $6.6 billion.

Overall, the semiconductor industry is seeing an overarching trend of consolidation as vendors grapple with emerging mobility trends, such as the Internet of Things.

"This space has always moved fast, but today we're in the midst of a paradigm shift between server architecture to devices and client architecture," said Swank. "Everyone is switching and making their bets with the Internet of Things, big data and cloud. The traditional servers and client PCs are not a focus as they used to be."

According to Gartner, in 2014 the semiconductor industry saw more merger and acquisition activity than the previous year, including MStar Semiconductor's merger with MediaTek and ON Semiconductor's acquisition of Aptina Imaging.

More recently, rumors of Intel purchasing programmable custom-designed semiconductor manufacturer Altera have been churning.

Charles King, analyst at market researcher Pund-IT, said the surge in acquisitions was also a response to an increasingly competitive market as vendors strive to make their chips smaller and faster.

"There's a huge amount of consolidation going on in the semiconductor space," he said. "It's an industry that is brutally competitive and expensive to stay current in. I don't expect this to be the last acquisition we'll see. Part of staying current in the business includes sophisticated manufacturing, human capital and new technology. Those are benefits that Broadcom brings to Avago with this deal, and Avago is not just getting more exposure to opportunities and markets, but also getting more brain trust."

PUBLISHED MAY 28, 2015