Joining the big league
1 min read
The semiconductor industry, in its various guises, is developing into big and small companies. But, stuck in the middle, there are still companies which are neither one thing nor the other. They have healthy turnovers, without doubt, but their prospects for growth are limited, which makes them potential takeover targets.
So what's an often embattled ceo of one of these mid range companies to do when under pressure from investors or shareholders to generate more revenue and, importantly, more profit?
Avago is a successful company in many respects. LSI can also be regarded in the same fashion. Yet this week, Avago has spent $6.6billion to acquire LSI, apparently doubling its revenues at a stroke. And the interesting thing is that Avago says the deal will make it money immediately.
The same behaviour has been seen in the eda market, where acquisition was seemingly once the only way to grow a business, and in the distribution world.
Karen Liu, Ovum's principal analyst for AsiaPac telecomms, says: "It moves the company further from the cluster of smaller ($1billion revenue or less) communication semiconductor vendors, such as Applied Micro, PMC-Sierra and Cavium, and into a cluster with Broadcom ($8bn) and Freescale ($4bn)."
And there's the story. An acquisition which not only brings complementary technology, but which also sees a company propelled into a different league.
We've seen similar moves in the past; not all have been the successes their architects intended. Avago, with the addition of LSI's data centre focused technology, looks well placed.
