Broadcom Keeps Expanding With 11th Acquisition
Seeking to expand its reach in the networking market for smaller businesses, Broadcom Corp. said Monday it would buy a San Jose supplier of integrated circuits for $560 million in stock.
Broadcom will exchange 2.5 million shares of its stock for all of the shares of closely held Altima Communications Inc. Based on Monday’s closing prices, the purchase would be Broadcom’s most expensive of 11 acquisitions since the Irvine chip maker went public in 1998.
Although the deal will do little to expand Broadcom’s technological capabilities, it is expected to give Broadcom inroads, particularly in Asia. Altima has about 75 employees at facilities in San Jose and Taiwan.
“This will give us very strong sales and support channels in a very important geographic segment,” said Broadcom Chief Executive Henry T. Nicholas III.
Asia currently represents 10% to 12% of Broadcom’s business. “This will significantly expand that,” Nicholas said.
The deal was announced early Monday, and on a day of rebounding tech stocks on Nasdaq, Broadcom’s stock gained 5.25% to close at $224.25.
Broadcom is the leading maker of semiconductors for cable-TV modems and digital set-top boxes. The company also makes high-speed computer networking equipment.
The acquisition, which has been approved by boards at both companies, is expected to close within 60 days. Broadcom said it will take a third-quarter charge associated with the purchase, but it didn’t say how much, and Nicholas noted that the purchase would not dilute Broadcom’s earnings.
Nicholas said Altima represents a mid-range market, which Broadcom had “done a good job of addressing but not as good as we like.” The small- and medium-business networking market is expected to double this year over 1999, analysts say.
Altima makes circuits that link networks within the home or small- to medium-sized business. Contract manufacturers such as D-Link Systems Inc. of Taipei and Accton Technology Corp. of San Jose buy the chips and assemble them into networking boxes; these are packaged and resold to companies such as Cisco Systems Inc., Nortel Networks and Compaq Computer Corp.
Those major players are relying increasingly on Taiwanese companies for low-cost products, said Sean Lavey, a research analyst at IDC in Mountain View, Calif.
Some analysts said that even for Broadcom, which has a reputation for paying top dollar for companies, the cost of the Altima acquisition appeared to be steep.
Unlike some of Broadcom’s acquisitions, this one lacks the immediate appeal of launching Broadcom into a bold new technological arena.
“It doesn’t seem like the most exciting acquisition,” said Rick Billy of SG Cowen Securities Corp. “This technology has been around a while, and it’s a commodity by now.”
Still, analysts said the acquisition would help Broadcom round out its portfolio.
“This is a merger that helps tweak or fine-tune their ability to deliver products,” said independent telecommunications industry analyst Jeff Kagan of Atlanta.
“Broadcom is always willing to pay a premium,” said Ida Rose Sylvester of DataQuest in San Jose. “It’s not so much based on a market value. Broadcom buys things based on their strategic value.”
In contrast to previous Broadcom purchases, Altima will retain its name, attempting to leverage its reputation in Taiwan. Broadcom intends to tap Altima’s established marketing force to expand sales of other Broadcom products as well, Nicholas said.
Altima’s chief executive, Stewart Wu, is a Taiwanese-born American citizen who splits his time between the company’s facilities in San Jose and Taiwan. He will retain his position.
Altima’s headquarters in San Jose is next door to a Broadcom facility. The two companies formed a relationship a little less than a year ago, collaborating on the development of a product.
“Our engineers went out to lunch with their engineers. They literally share the same lunch court,” Nicholas said. “There are a lot of close personal relationships already in place.”
But even while the companies operated in the same market, they were never direct competitors, Nicholas said. “They were very good at sensing where we were not developing and developing products within that space.”
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Broadcom Corp. continues its shopping spree, buying technology and increasing its hold as the dominant force in communications chips. Here are the 11 companies it has bought since 1999: (Tabular data not included, not in Editorial Art database.)
