|Broadcom Acquisition Sets the Stage for More Tech Buyout Action|
Thursday September 15, 2011, 9:03 am EDT
While some pundits are debating the price or even the merit of Broadcom's (NASDAQ: BRCM - News) offer to purchase NetLogic Microsystems (NASDAQ: NETL - News) for $50 per share or a total of $3.7 net of cash, Next Inning Technology Research Editor Paul McWilliams believes the move was not only good for Broadcom, but absolutely necessary.
In his July 17th State of Tech report covering specialty semiconductor companies, McWilliams wrote the following about Broadcom: "I think Broadcom needs to consider moving more forcefully into the network processor/knowledge based processor markets where smaller companies like EZChip Semiconductor (NASDAQ: EZCH - News), Cavium (NASDAQ: CAVM - News), and NetLogic Microsystems (NASDAQ: NETL - News) are making strong moves and will soon look to integrate the functions that have been Broadcom's bread and butter." "Broadcom has a critical hole in its product line and given the design win traction of Cavium and NetLogic, it had little choice beyond making a major acquisition" said McWilliams. "The acquisition is clearly logical and really the only feasible way Broadcom can leverage its ability to fully integrate in the strategic markets it addresses." As McWillliams explains, Moore's Law has driven us to another tipping point where semiconductor companies like Broadcom companies must accelerate the pace of integration or face the threat of entering a decaying orbit.
In a special report covering the acquisition and likely events it will drive, McWilliams points out how Cavium and NetLogic have successfully executed strategies to developed substantial strengths in Layer 4 through 7 applications in the Open Systems Interconnection (OSI) networking stack. In addition, both companies have more recently expanded the scope of their business models to address high volume applications like automotive infotainment, telematics, set-top boxes, and wireless connectivity.
When I asked McWilliams about the price offered by Broadcom for NetLogic, he again referred to his July State of Tech report in which he encouraged Next Inning readers to buy the stock and noted his six- to nine-month price target for NetLogic extended only slightly above the $50 offer. He added that while he doesn't think the odds are very high that another company will try to top Broadcom's offer for NetLogic, he does think there is a pretty good chance Cavium will come into play.
In his special report, McWilliams discussed eight of the companies he thinks are most likely to show an interest in Cavium. These include Marvell Technology (NASDAQ: MRVL - News), Qualcomm (NASDAQ: QCOM - News) and Texas Instruments (NYSE: TXN - News) that others have noted as possibilities, but McWilliams leverages his decades of experience in the semi industry to evaluate why other names like Altera (NASDAQ: ALTR - News), Xilinx (NASDAQ: XLNX - News) or even STMicroelectronics NV (NYSE: STM - News) might show interest.
While my first reaction to the idea of Altera or Xilinx stepping up was one of disbelief, once I read what McWilliams had to say in his report, I've got to admit I found myself nodding in agreement. Most intriguing though was his thesis about Marvell.
"The prospect of Marvell acquiring Cavium is intriguing, and there are enough synergies and new opportunities to make it logical," McWilliams said. "Another interesting aspect is that Marvell is also well positioned to buy EZchip at some point, and the combination of Cavium and EZchip would be extremely powerful, and when combined with Marvell's already growing presence in networking and telecom, provide a set of resources capable of challenging anyone, including Broadcom." To read McWilliams' reports on Broadcom's acquisition of NetLogic and the potential impact throughout the semiconductor industry, as well as additional thoughts about future macroeconomic trends and investing in tech sector companies, please come to www.nextinning.com for a free 21-day evaluation period with absolutely no obligation.
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