Broadcom Corporation (NASDAQ:BRCM) is about to close a deal acquiring network gear maker Brocade Communications Systems, Inc. (NASDAQ:BRCD). Inside sources indicate that the acquisition talks between the two are at an advanced stage and are likely to come to a conclusion soon. However, none were willing to give their comments citing that it was a private matter.
The purchase of Brocade by the U.S.-Singapore-based company will take over the latest wave of semiconductor consolidation that seems to have taken charge of the industry. The company was previously known as Avago before this year’s takeover, which cost $37 billion.
Brocade’s fiber channel and storage business will remain intact
Broadcom is the third-largest U.S. semiconductor maker by revenue. Intel and Qualcomm take the leadership with their market capitalization of nearly $66.4 billion. Thus, given the company’s firm grip on the market, it is likely to salvage Brocade’s $1.5 billion fiber channel and storage business. It would also seek to part from its networking business its bigger part having been by Ruckus Wireless earlier in the year. In the third quarter, the IP networking business unit reported $209 million in product revenue.
At the time it was bearing the name Avago, it acquired Emulex, which was a considerable push into fiber channels and adapters. It also put its capabilities together hoping to help customers with the backbones of their data centers.
The growing demand for cloud computing
Broadcom’s buyout comes at a time when there is increasing demand for cloud computing, which makes online transactions are easy. It has become a norm for many enterprises. According to Amit Daryanani, an RBC Capital Markets analyst, and the acquisition would fit with Broadcom’s M&A strategy.
In a research note, Daryanani says, “The acquisition would be fairly logical and would fit Broadcom’s historical M&A practice of acquiring companies that play in markets with little competition, have high gross margins and an inefficient operating expense structure.”
