European regulator approves Avago’s $37-bn acquisition of Broadcom without conditions

European antitrust regulator yesterday approved Avago Technologies Ltd's proposed $37-billion acquisition of rival chipmaker Broadcom Corp without conditions.

The European Commission (EC) said that although it had some initial concerns, but concluded that the merged entity would continue to face effective competition in Europe.

In May, Avago agreed to buy fabless semiconductor peer Broadcom in the largest merger of chip makers (See: Avago Technologies to acquire Broadcom Corp for $37 bn).

The EC had some concerns about the vertical relationship created by the transaction, since Avago supplies certain intellectual property (technology for allowing fast data transmission between chips) to some of Broadcom's competitors.

The EC's concern was that after the takeover Avago could have had an incentive to withhold this intellectual property in order to extend the merged entity's leading market position in the so-called "switch chips" market.

However during the EC's assessment of the case, Avago addressed these concerns by entering into commercial agreements with other "switch chip" manufacturers. These agreements ensure that other "switch chip" manufacturers will continue to have access to the necessary intellectual property on reasonable terms.

Both Avago and Broadcom are manufacturers of semiconductors materials, most typically silicon, which are used in semiconductor devices like microchips and their components (for example diodes and transistors). These devices are then used in a wide-range of products such as mobile phones, computers, domestic appliances, cars, medical equipment, identification systems, large-scale industry electronics and aerospace equipment.

The EC said that its investigation showed that the portfolios of the companies are mainly complementary since Broadcom makes "off-the-shelf" chips for the broadband and connectivity market segments, while Avago makes custom-built chips for special applications in the analog wireless integrated circuits, enterprise, storage and industrial segments.

Avago, based in Singapore, designs, manufactures, markets and sells a range of semiconductors for use in wireline and wireless communications, storage applications and industrial applications, while California-based 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 is the biggest by Avago's chief executive Hock Tan, who developed a small chipmaker into a $36-billion company through acquisitions since taking over helm nine years back.

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.

Qualcomm, 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.

Meanwhile, Qualcomm had hinted it would be looking at new areas for growth.

"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."