Broadcom Buys Brocade To Expand Enterprise Portfolio

by CXOtoday News Desk    Nov 03, 2016

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The chip industry is currently witnessing a wave of acquisitions, with more USD100 billion in deals in the last two years. The latest in this space is chip maker Broadcom that has acquired Brocade for USD 5.9 billion. The buyout will help the company capitalize on booming demand for cloud computing and the data centers that deliver it.

Broadcom, whose chips are used in Apple’s iPhone and TV set-top boxes, is acquiring Brocade for technology that links computer-storage systems and allows the fast transfer of data, the company said in a statement today. It will sell off Brocade’s other networking-equipment businesses to avoid competing with its existing customers.

“This strategic acquisition enhances Broadcom’s position as one of the leading providers of enterprise storage connectivity solutions to OEM customers,” stated Hock Tan, President and CEO, Broadcom. “With deep expertise in mission-critical storage networking, Brocade increases our ability to address the evolving needs of our OEM customers. In addition, we are confident that we will find a great home for Brocade’s valuable IP networking business that will best position that business for its next phase of growth.”

Adding Fiber Channel Storage Area Network (FC-SAN) into the mix will mean Broadcom can better serve enterprise customers - a sentiment supported by Brocade. “Our best-in-class FC SAN solutions will help Broadcom create one of the industry’s broadest portfolios for enterprise storage,” Brocade’s CEO, Lloyd Carney, added.

Although Broadcom will integrate Brocade’s Fibre Channel SAN Switching business into its offering, the company will not take on Brocade’s IP networking business, including its wireless and campus networking, data center switching and routing, and software networking solutions.

However, Broadcom has offered to help Brocade find a buyer of its IP networking business. “We will work with Broadcom as it seeks to find a buyer for our IP Networking business,” Carney said.

“We are confident that we will find a great home for Brocade’s valuable IP networking business that will best position that business for its next phase of growth,” Tan agreed.

The board of Brocade and the executive committee of Broadcom’s board have unanimously approved the deal, as Lloyd Carney, the Brocade chief executive, said in a post on the company’s website, “We were not looking to sell the company… However, when Broadcom approached us with a compelling offer, we had an obligation to consider that offer, along with other alternative opportunities. After careful consideration, we concluded that Broadcom’s offer was in the best interests of our company and its shareholders.”

The semiconductor industry is undergoing consolidation. Last year, Intel paid nearly USD 17 billion for Altera and NXP itself acquiredFreescale Semiconductor, for USD 11.8 billion. In fact, Last week, Qualcomm agreed to acquire NXP Semiconductors for USD 38.5 billion. In July, SoftBank of Japan bought ARM Holdings, a UK-based chip designer, for USD 32 billion.

For Broadcom, the Brocade deal represents the latest in a series of transactions since the company formerly known as Avago went public in 2009. Since then, The company, now known as Broadcom, is headquarters in Singapore and San Jose, US, with its management team has pursued more than a half-dozen acquisitions.  

The transaction centered around its storage area network business, which provides data storage solutions for businesses, and is expected to complement Broadcom’s existing offerings, is likely to close in the second half of Broadcom’s 2017 fiscal year.