If Broadcom is hunting, here is Israeli prey

Local firms may be good fits for a chip firm looking for M&A.

Earlier this month, high speed mobile communications chip maker Broadcom lowered its fourth quarter outlook. The company’s figures dropped quite a bit its fourth quarter revenue outlook fell to $1.05-1.1 billion, from $1.17-1.23 billion.

The revised figure includes the recently-acquired digital TV operations of AMD, so that a comparison of its core results is even worse.

Yet the firm’s shares actually rose 12% during the week that it lowered its outlook, compared with a 2.1% gain in the Nasdaq composite index.

From a historical perspective, the fab-less semiconductor company is not the same one that made it though the 2001 crisis. Since then, it has made more than 10 acquisitions, though its workforce has only increased 20%.

Now, the company is not looking to respond defensively, with only cost-cutting measures. Management looks to widen R&D into new areas, initiate a share buy-back program, and acquire competitors who are weak or are in weak markets. It's no wonder that Lazard Capital Markets analyst Daniel Amir rated the firm a “Buy” and said it was well positioned for the downturn.

Broadcom, according to a company presentation, plans to expand strategically in several sectors, including GPON - Gigabit passive optical networking, MoCA - the multimedia over coax alliance, mobile TV, and baseband chips for the mobile phone market.

It pays to note the way Broadcom CEO Scott McGregor said that the firm was seeking deals with companies who have talented people who are developing products that match its strategy.

In line with his thoughts, here is a partial list of Israeli firms that may fit the bill:

  • Fabless semiconductor firm Dune Networks - which is developing switching devices for networks.
  • Mobile digital TV company Siano
  • Mobile communications chip makers Asocs, Altair, or Comsys
  • Public wireless network developer Siverge
  • Coppergate or Broadlight although each would be a slightly more complicated transaction

    This is just a partial list of Israeli companies that may fit the bill as merger and acquisition candidates.

    Despite how things look, the crisis is a rare opportunity for a company like Broadcom. With deep pockets ($2.3 billion in cash and short term investments as of the end of the third quarter), an insatiable appetite, demand for its products in attractive markets, and company valuations falling, 2009 and 2010 stand to be hot years for it. If 2007 and 2008 were the years of storage and virtualization technology, the next two years could well be the years of chips and communications.

    Published by Globes [online], Israel business news - www.globes-online.com - on December 22, 2008

    © Copyright of Globes Publisher Itonut (1983) Ltd. 2008

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