Sean Udall is the author of the TechStrat Report. The following is a free sample. Take a free trial!
The best companies don't quit improving operations or investing just because the macro picture isn't perfect.
Case in point today: Broadcom
(BRCM) buys NetLogic Microsystems
(NETL) for a strong premium of nearly 50%.
BRCM is taking a page out of other periods where the markets were weaker, and does another key deal to strengthen the company for a number of years.
The NETL buy seriously strengthens various end-market product portfolios for BRCM -- most notably in all things ultra-high-speed related to movement of data, video and voice over nearly any type of connection.
If there is a negative that the naysayers will point to, it might be the price of this deal. In my view, BRCM has not just committed an overpay. Frankly, in my view, if the macro picture wasn't so uncertain in the near term I'm not sure this deal could have gotten done.
What BRCM does here is help its future market share position in a number of markets. What NETL receives is access to the sales force and marketing muscle of BRCM, which is not unparalleled but only challenged by less than a handful of companies in the Semiconductor space.
Interestingly, this does not really change the landscape that much. However, it does take NETL's portfolio out of the hands of Qualcomm
(QCOM) or Intel
(INTC) or possibly even a Texas Instruments
(TXN). So this deal is both strong offense and defense for BRCM.
What this also does is add some more M&A fever into the Communication Semiconductor mix! First it will draw more attention to Cavium Networks
(CAVM) as it is perceived as NETL's closest peer. Aside from CAVM, this deal may highlight the value of PMC-Sierra
(PMCS) the most. In many ways PMCS has a host of technologies which would help a non-BRCM behemoth like QCOM or INTC compete in the networking, optical networking, and wireless back-haul space. Especially now that NETL innovation pipeline will support BRCM's already imposing R&D muscle. Lastly, the sleeper here could be Inphi Corp
(IPHI) which has been hammered on the INTC Romley server delays but also has a strong pipeline of 40 & 100G solutions segment.
On a tertiary basis it might raise the potential takeout value for Integrated Device Technology
(IDTI) (by a bit, but this might take slightly better market tone to come through). Another name would be Applied Micro Circuits
Lastly, does this deal highlight the potential for the Marvell Technology Group
(MRVL), INTC tie-up?
Bottom line, lots of positives and M&A implications here on the "micro" for the Communication Semis space, but it's all intermixed with the lingering macro picture, which is able to take stocks lower on essentially the same news week after week. Over time this likely raises the valuations for this sub-group.Twitter: @Udalltechstrat
Positions in BRCM, PMCS, IPHI, MRVL, IDTI, QCOM
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