Broadcom Adds Network Gear With Brocade Buy

The chipmaker is paying $5.5 billion for Brocade to create a "powerhouse" in networking products used in data centers.
Matthew HellerNovember 2, 2016
Broadcom Adds Network Gear With Brocade Buy

Chipmaker Broadcom Ltd. said Wednesday it had agreed to acquire Brocade Communications Systems for $5.5 billion, diversifying into networking products as the recent wave of chip sector deals continues.

Brocade is a leader in fiber channel storage area networking  products used in data centers. The combination with Broadcom would create a “networking storage powerhouse,” according to TechCrunch.

Broadcom will pay $12.75 a share for Brocade, a 47% premium over the $8.69 closing price on Oct. 28 before media reports about a possible deal surfaced.

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“Our storage area network business will offer a strong complement to Broadcom’s offerings and capabilities, creating one of the industry’s broadest portfolios for enterprise storage,” Brocade CEO Lloyd Carney wrote in a blog post.

Broadcom CEO Hock Tan said the deal will enhance “Broadcom’s position as one of the leading providers of enterprise storage connectivity solutions” for original equipment manufacturers. “With deep expertise in mission-critical storage networking, Brocade increases our ability to address the evolving needs of our OEM customers,” he added.

Under the terms of the deal, Broadcom will divest Brocade’s IP network, which includes Ruckus Wireless, a company Brocade recently acquired for $1.5 billion. Carney cited competitive overlap with some of Broadcom’s most important customers.

As Reuters reports, the chip industry “has been undergoing rapid consolidation as companies try to capture market share, much of it related to connected devices and cars.” In the largest chip deal ever, smartphone chipmaker Qualcomm agreed last week to buy NXP Semiconductors for about $38 billion, making it the leading supplier to the fast-growing automotive chips market.

Broadcom Corp. was itself acquired last year by Avago Industries for $37 billion, forming Broadcom Ltd. Since Avago went public in 2009, its management team has pursued more than a half-dozen acquisitions.

“We believe the [Brocade] deal is highly complementary to Broadcom’s existing enterprise storage offerings and boosts its exposure to the high growth data center market,” CFRA Research analyst Angelo Zino said.

In trading Wednesday, Brocade shares rose 9.7% to $12.33, while Broadcom was up 1.5%, at $151.91.