Broadcom - Growth by Acquisition

Thursday, February 21, 2008

My next piece on Broadcom, originally written for Sramana Mitra's site.

Over the last two parts of this series, we discussed the advantages and disadvantages of Broadcom’s wide portfolio at length. It is also illustrative to look at a key strategy that the company has been following for a while now: Growth by acquisition.

The breadth of Broadcom’s offerings comes from the various strategic acquisitions that it has invested in. Between 1999 and 2007, Broadcom acquired 36 companies spanning its three target markets. Broadcom has used these acquisitions to fill gaps in its product-lines, to reduce time to market, to carve a niche and also perhaps, to eliminate competition. These acquisitions have also allowed rapid enhancement of the company’s engineering expertise efficiently.

The 2005 acquisition of Sandburst Corporation is a good example of how Broadcom has rounded up its product portfolio through this strategy. The Massachusetts-based company’s semiconductor solutions for enterprise core and metropolitan Ethernet networks have helped Broadcom offer complete end-to-end Ethernet switching products.

Among its other ventures, Broadcom acquired Zyray wireless, a company that developed WCDMA baseband co-processors, in June 2004. The San Diego-based company came at a reasonable $96 million (paid in stock). Not bad considering that its SPINNER chip was Broadcom’s entry-point into 3G. At the time, Zyray’s product complemented Broadcom’s GSM/GPRS/EDGE capabilities and enabled the Irvine-based company to have a cost-effective WCDMA solution. Zyray’s solution, engineering team and its intellectual property have been important value-additions to Broadcom, whose future rests on its delivery and design wins in the mobile space.

Broadcom’s most recent acquisition, Global Locate also deserves a mention. Global Locate, acquired for around $146 million, developed GPS and Assisted-GPS (A-GPS) semiconductor solutions and software. Given its foray into 3G and mobile wireless which is migrating towards convergence devices or highly integrated communication devices, I was expecting Broadcom to make the GPS move much earlier. On the other hand, I am glad it has done it before the impending 3G boom. Adding GPS capabilities to its portfolio not only enables stand-alone solutions but also provides a path towards integrated Bluetooth, WLAN and GPS chips that can go into Personal Navigation Devices and mobile chipsets. Besides, GPS and location-based services are quickly becoming integral to tomorrow’s mobile-phones. Broadcom, through this acquisition, hopes to tap its System-on-Chip (SoC) capabilities to obtain design wins for its now-complete mobile portfolio.

Perhaps the best thing about these acquisitions is that they are well-calculated, strategic moves that did not dent its cash coffers outrageously. While most of these acquisitions have contributed to Broadcom’s mainstream product-line, their relatively cheap price tags allows the company to shed them off if found superfluous. Of course, this is not a desirable outcome. But the point I am making is that Broadcom should not hesitate on tough decisions, since it will provide more focus, and as Michael Kanazawa puts it, lesser corporate A.D.D.

Disclaimer: These are my perspectives on Broadcom and does not necessarily reflect the views of Atheros Communications or Tensorcomm.


Posted by Vijay Nagarajan at 9:00 AM  

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