Chip maker Broadcom reveals plan to buy Brocade for $5.5bn

3 Nov 20169 Shares

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Broadcom sign. Image: Ken Wolter/Shutterstock

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In what it hopes will give it greater access to data centres, chip maker Broadcom has revealed it is to purchase Brocade Communications for $5.5bn.

Once known as Avago Technologies, Singapore-based Broadcom has been one of the largest producers of chips used in both mobile devices and industrial-scale servers, and now plans to boost its influence in the lucrative data centre business.

According to Reuters, the company is close to agreeing a deal to purchase US-based Brocade Communications, a manufacturer of fibre-channel switches that speed up data transfer between servers and storage devices.

The decision to get a better foothold in the data centre products market makes sense, given its current – and predicted – lucrative status. Recent findings from IDC estimate that it will be worth just over $37bn by the end of this year.

As part of the deal, Broadcom has said that it will sell off Brocade’s networking business, which manufactures the controllers and access points for high-speed broadband, to prevent it coming into competition with the powerhouse of Cisco Systems.

Speaking of the deal, Broadcom’s CFO Tom Krause said: “We are very strategic with divestitures. There’s logical buyers in the networking space for this business.”

Now worth close to $67bn, Broadcom’s announced acquisition has resulted in a surge in Brocade’s share value – gaining 30pc since the first indications were made on 31 October.

Also revealed as part of the deal was that Broadcom would be taking on approximately $400m in Brocade debt to close the deal, with the acquisition being funded by both cash and debt.

This latest deal marks yet another big takeover among chip makers, with news towards the end of September emerging that Qualcomm was to buy NXP Semiconductors, which has now closed at a record deal of $38bn.

Broadcom sign. Image: Ken Wolter/Shutterstock

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Colm Gorey is a journalist with Siliconrepublic.com

editorial@siliconrepublic.com