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Avago Stacks Its Chips With $37B Broadcom Buy

Cable operators aren’t the only ones with consolidation on the brain. Vendors — from set-top box suppliers to makers of the chips that power them — are also keen on building diversity and scale.

In a deal that places a huge bet on cable’s broadband and video future, Avago Technologies announced last week that it will acquire Broadcom for $37 billion, including $17 billion in cash.

While Avago is the one doing the acquiring, the resulting, combined company will be renamed Broadcom Ltd. It will have a combined annual revenue of $15.1 billion, putting it ahead of Texas Instruments, but still leaving it well behind Intel and Qualcomm.

In addition to tacking on Broadcom’s wireless technology and expertise, Avago will also become a major player in cable, as Broadcom is a key supplier of set-top box chips, including those based on the Reference Design Kit (RDK), the pre-integrated software stack for IP and hybrid devices being managed by Comcast, Time Warner Cable and Liberty Global. Broadcom also makes silicon that powers DOCSIS-based cable modems and gateways, as well as DSL and fiber-to-the-home equipment.

With respect to cable’s baseline IP platform for hybrid fiber-coaxial networks, Broadcom is one of three chipmakers known to be developing modem chips for DOCSIS 3.1, the emerging CableLabs-specified platform that will bring multi-Gigabit speeds to HFC networks. Intel, which acquired Texas Instruments’ cable modem business in 2010, and STMicroelectronics are the other two that are working on D3.1-based chips. Broadcom unveiled a D3.1-based reference design, the BCM93390, in January.

Avago said the deal is complementary, builds on its wireless, enterprise storage and wired infrastructure-chip business and will create a behemoth with a combined $77 billion enterprise value.

The company expects the deal to generate $750 million in annual cost synergies within 18 months of closing, expected to occur before the end of first-quarter 2016.

“There is very little if any overlap of the products of the two companies,” Hock Tan, president and CEO of Avago, said May 28 on the company’s earnings call. “We are both fairly substantial companies in the semiconductor space, but the overlap is zero — minimal at best … even though we [have] common customers.”

Tan, set to become president and CEO of the combined company, said he expects wired to be its largest segment, at about 40%, with wireless and industrial both at roughly 30%.