Chipmaker Broadcom to buy NetLogic for $3.7 billion
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Chipmaker Broadcom to buy NetLogic for $3.7 billion

Last Updated: Tuesday, September 13, 2011, 09:17
 
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Chipmaker Broadcom to buy NetLogic for $3.7 billion

New York: Chipmaker Broadcom Corp plans to buy NetLogic Microsystems Inc for about USD 3.7 billion to expand its lineup of chips used in wireless network equipment to take advantage of growing demand for mobile data services.

The USD 50-per-share deal, which represents a premium of 57 percent over NetLogic's Friday close of USD 31.91 on the Nasdaq, sent NetLogic's shares soaring 50 percent on Monday. But Broadcom shares were down 2.5 percent at USD 32.60 as some investors questioned the steep premium.

Broadcom Chief Executive Scott McGregor defended the premium, noting that NetLogic would bring faster profit and revenue growth and that the addition of the products to Broadcom's lineup would double the size of the network equipment market it can go after to about USD 12 billion by 2015.

"Premier assets are going to cost more than a fixer-upper," McGregor said. "They're a decent growth company. They accelerate our revenue growth and increase our market opportunity."

Broadcom already sells different types of chips to the same network equipment makers that use NetLogic products. Broadcom chips help direct traffic across networks while the NetLogic chips are used to examine the type of data on the network so that it can be processed more efficiently.

"It doesn't bring us any new customers but it brings us new value for the customers we have," McGregor said.

He said that Broadcom would continue to look for more acquisitions in the communications chip market.

It would cost a lot for Broadcom to build the NetLogic technology itself, Williams Financial analyst Cody Acree said.

"It's a high premium but it's a necessary premium. NetLogic has a huge amount potential," Acree said. "They've developed a portfolio of products that's unique and difficult for Broadcom to reproduce."

Shares of NetLogic rival Cavium Inc were up 5 percent at USD 32.47 on Monday as some investors hoped Cavium could also attract a suitor. However, Acree said that a stronger NetLogic could make it more difficult for Cavium to compete.

The companies said the transaction has been approved by their respective boards and was expected to close in the first half of 2012.

Broadcom expects the deal to add 10 cents a share to earnings on an adjusted basis in 2012. It kept its forecast for third-quarter revenue of USD 1.9 billion to USD 2 billion, with product gross margins flat to slightly higher.

Broadcom said it expects to have around USD 4.2 billion in cash on hand by the end of third quarter, up from some USD 3.8 billion at the end of the second quarter.

In its latest quarterly report, NetLogic posted a 14.4 percent revenue increase to USD 98.7 million. Roughly 42 percent of revenue depends on network equipment sales in China.

NetLogic already sells chips to Cisco Systems Inc and Alcatel-Lucent and said in May that it expects Hewlett-Packard Co, Ericsson and ZTE to become major customers later this year as they increase spending on high-speed wireless technologies.

NetLogic shares were up 50.4 percent at USD 47.99 on Monday afternoon on the Nasdaq.

Bureau Report




First Published: Tuesday, September 13, 2011, 09:17


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