Broadcom chipmaker buys Brocade to the detriment of its plans

The semiconductor market is going through hard times. Players continue to consolidate and optimize costs.

The manufacturer of semiconductors Broadcom and Brocade, a company developing hardware and software for managing storage area networks, made a deal. It's about selling Brocade. Broadcom will pay $ 5.5 billion for it. Following the announcement of the sale, Brocade shares rose 6% and began to trade at $ 11.24.
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Thus, each of its shares will be sold for $ 12.75 , writes Reuters. Under the terms of the deal, Brocade shareholders will receive 47% of the premium on their investments. In addition, the buyer will pay Brocade debts amounting to $ 400 million.



It is noteworthy that the same $ 400 million Broadcom had previously planned to invest in restarting the former Hynix chip manufacturing plant, which was located in Eugene (Oregon) and was closed in 2008. Last year, Broadcom bought out the plant and expressed its intention to reconstruct it and make it part of its semiconductor business. Now, however, plans have changed: Broadcom will sell unused production.



The Brocade transaction will be completed in the second quarter of 2017. After that, the companies plan to jointly look for a buyer for Brocade’s IP networking business.

Market

The solid growth of the semiconductor industry was replaced by a downturn last year. The list of the largest chip makers Samsung Electronics continues to reduce the gap from the leader of Intel, according to analysts IHS. According to their estimates, in 2015, global sales of chips amounted to $ 347.3 billion, which is 2% less than a year earlier. In 2014 and 2013, the market volume increased by 8.3% and 6.4%, respectively.

The study notes that the semiconductor industry fell throughout 2015, and in the first quarter relative to the three previous months, a decline of 8.9% was the largest in the previous six years.



IHS analyst Dale Ford says last year's results were the signal for the beginning of the expected three-year stagnation of the semiconductor industry. In the period from 2015 to 2020, it will grow only by 2.1% per year. This is due to weak demand in the three main segments of microcircuits: wireless communications, data processors and consumer electronics, Ford said.

About Broadcom and Brocade

Broadcom was originally a US electronics manufacturer, but in May 2015, Avago Technologies, the former semiconductor division of Hewelett-Packard, bought it for $ 37 billion and created Broadcom Limited, registered in Singapore.

The transaction is considered the largest in the history of the technology industry. Prior to this, the ranking was headed by Facebook, which bought the WhatsApp messenger for $ 19 billion.

Broadcom manufactures chips for modems, switches, access points, set-top boxes, laptops, tablets and smartphones.

Brocade is an American manufacturer of network infrastructure, including fiber-optic channels, routers, adapters, network switches, routers and software for them.