No.2 listed chip company
Broadcom (ticker: AVGO) is the world’s second largest listed semiconductor company by market value, second only to Nvidia (ticker: NVDA). Broadcom is the world’s sixth-largest semiconductor company in terms of annual sales.
At present, the company has expanded into various enterprise software businesses, with annual revenue exceeding US$30 billion. According to the current software M&A strategy, it is possible that software revenue will account for more than 40% of the company’s total revenue in the future.
Previousely a Singapore company
Broadcom (ticker: AVGO) is a spin-off from Hewlett-Packard (ticker: HPQ) and is headquartered in Singapore; this is because HP’s Asia-Pacific operations are headquartered in Singapore. Regarding the relationship between HP and Broadcom, I suggest you refer to my other blog article “HP is an important good company, but isn’t it a good stock? “
Broadcom has now become an integrated holding company, but its semiconductor revenue is still over half. Its main business is:
- The original semiconductor departments of Broadcom and Avago Technologies were two companies in the traditional chip field.
- In the software field, Brocade, Portfolio International, Symantec, and VMWare are large-scale software companies that were acquired through mergers and acquisitions.
The company has 17 core semiconductor product lines covering wireless, networking, broadband, storage and industrial markets. It is primarily a fabless design company but also has some in-house manufacturing capabilities, such as best-in-class FBAR filters sold to Apple iPhones.
In addition, in the high-end ASIC market, Broadcom is firmly in the leading position with a market share of 35%, followed by Marvel (ticker: MRVL) with a market share of 12%.
In terms of software, the company’s main customers are large enterprises, financial institutions and government units selling virtualization, infrastructure and security software.
Notable mergers and acquisitions
Failed to acquire Qualcomm
In 2018, Broadcom (ticker: AVGO) originally wanted to acquire Qualcomm (ticker: QCOM), but was blocked by Trump because Broadcom was not a U.S. based company. Even if it later moved its headquarters from Singapore to the U.S., it still failed. The U.S. censorship broke the game. This incident did not arouse the attention of Wall Street, and the news was only one day; but this move has a huge impact on Broadcom. After the unsuccessful acquisition of Qualcomm, Broadcom changed its course and formulated a new strategy: becoming an infrastructure software acquirer.
It’s a pity that SAS failed to succeed in the data analysis with the longest history in the US$ 20 billion M&A market in July 2021, because this company insists on having a unique corporate culture and has not been listed for decades. The income comes from government organizations and the banking industry, providing business analysis and artificial intelligence technology forecast results, which is in line with the general direction of the current software industry, and it is also a large enterprise software vendor that Broadcom wants. But this should not affect the long-term trend of Broadcom ‘s acquisition of software holding companies.
In May 2022, Broadcom was rumored to be in talks to acquire VMware, a cloud computing company. There are rumors that Broadcom and VMware are negotiating, but it is uncertain whether the deal will go through. VMware is a well-known platform manufacturer of cloud computing software. Dell (ticker: DELL) has spun off VMWare last year and is now completely independent of Dell. VMware’s current market cap is about $40.3 billion.
Broadcom’s software empire ambitions
Who is Computer Associate?
Broadcom, which acquired Computer Associate (CA), for nearly US$ 19 billion, has now abandoned its acquisition of semiconductor companies and instead acquired mainframe and infrastructure software companies. Investors should not underestimate this step. For Broadcom, and even for the semiconductor and software industries, it can be said to have a far-reaching and important impact, because people in these two industries would never think of this. This means that Broadcom has since become a holding company, rather than a pure semiconductor company. This is the company’s most significant change after Avago successfully acquired Broadcom (ticker: BRCM) at an amazing price of 37 billion U.S. dollars in 2015.
Take CA as its software empire platform
Broadcom plans to use CA as a new platform for buying and merging other similar software companies. CA’s founder is Wang Jialian, who is of Chinese descent. At its peak, this company was the second largest software giant in the world after Microsoft. The characteristic of CA company itself is that the products have no special features, like a software hodgepodge or a hardware store. The company’s product lines are acquired through mergers and acquisitions. They have everything and sell everything, but there are few market-leading product lines. The only killer product in my impression (the price is scary, and there is no competing product with the same function in the market) is UniCenter, but now, 20 years later, this product has no advantage at all.
In 2018, Broadcom bought all the enterprise solutions department of Symantec (ex ticker: SYMC), a well-known cybersecurity company, but Broadcom did not want Symantec’s consumer department (because the enterprise solutions is more valuable (a golden goose) than consumer solutions, please refer to my analysis on section 3-2 of my book “The Rules of Super Growth Stocks Investing”), Symantec had to change the name of the remaining part of the company to NortonLifeLock (ticker: NLOK), continue to be listed.
Other software companies acquired
In 2019, Broadcom acquired Terma Analytics. This is an artificial intelligence analysis and simulation company that can assist companies in load simulation and automated processing across large mainframe and distributed system platforms. Many large retailers and banks are its customers.
Broadcom is a Software and IP company for long time
Many people don’t know that Broadcom had a solid software core IP design team before it made a large-scale acquisition of a software company, and it was successfully used in the design of various chips. Broadcom turned out to be a major ASIC leader in the world, and ASIC design requires a lot of software to simulate layout wiring and IP integration. These are impossible to achieve without software. Moreover, modern chip designs are becoming more and more complex, and the trend toward AI, DL, and HPC is an obvious irreversible trend, which also leads to more and more complex chips.
Broadcom has its own software and IP business
Many people don’t know that Broadcom had already owned a large-scale acquisition of a software company. In short, Broadcom is a unique company in the semiconductor industry. In addition to its industry being the world’s three major radio frequency leaders, modern smartphone manufacturers cannot escape this company (please refer to my explanation on section 3-7 of the book “The Rules of Super Growth Stocks Investing” ). It is also trying to take a path that is very different from other companies.
Since its listing in 2009, the company’s share price has risen by 2,748% in 12 years, and it is a company with a high yield rate of 3.08% that is rare among technology stocks.
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