Avago Technologies to acquire Broadcom Corp for $37 bn

Wireless and industrial chip maker Avago Technologies Ltd yesterday struck  deal to buy fabless semiconductor peer Broadcom Corp for $37 billion in the largest merger of chip makers.

Under the cash and stock deal, Avago, which makes chips for wireless and industrial markets, would offer Broadcom shareholders $17 billion in cash, and Avago shares valued at $20 billion.

Broadcom is best known for its connectivity chips, which find extensive applications in  smartphones made by Apple Inc and Samsung Electronics Co Ltd.

The deal comes as the biggest by Avago's chief executive Hock Tan, who developed a small chipmaker into a $36-billion company through acquisitions since taking over nine years back.

Tan, a serial deal-maker, had cut Avago's portfolio by spinning off units and strengthening faster-growing areas.

The combined company, to be based in Singapore and known as Broadcom, would be the third-largest US semiconductor maker by revenue, behind Intel Corp and Qualcomm Inc. Analysts say the merger, the industry's second mega-deal this year, is unlikely to be the last.

The $37 billion offered by Avago represents a premium of about 28 per cent to Broadcom's market value of $28.85 billion as of Tuesday's close, before The Wall Street Journal reported the the talks between the companies.

Meanwhile according to commentators, the Avago-Broadcom deal is likely to lead to a strategy rethink at Qualcomm, the world's largest chipmaker.

Qualcomm Inc, which had been a major market player in connectivity chips for smartphones, had been looking to extend its reach into data centres and network infrastructure, but might find the going tough with an enlarged competitor combining Avago's strength in storage and Broadcom's power in networking.

"Qualcomm has aspirations of moving into Intel's data center processor incumbency that the Avago storage and now enterprise networking (from Broadcom) capability directly overlays," said Drexel Hamilton analyst Richard Whittington, Reuters reported.

He added, it could see Qualcomm creating some sort of partnership with Intel Corp, to combat the reach of the new company.

Meanwhile, Qualcomm had hinted it was looked at new areas.

"I think there's going to be a tremendous amount of growth in computing and resources dedicated to supporting the cloud," Qualcomm chief executive Steve Mollenkopf said at last year's Consumer Electronics Show. "We look at that as an opportunity for a company like ours."