Agere Systems Inc. (NYSE: AGR.A) stock is getting a boost today from rumors that Broadcom Corp. (Nasdaq: BRCM) is considering an acquisition of the troubled chip firm.
A Broadcom acquisition seems to be a longshot bet, but it was enough to push Agere's stock up $0.18 (17 percent) to $1.26 by this afternoon.
Agere participates in a few markets that Broadcom doesn't, most notably chips for hard disk drives. And Agere could push Broadcom further into the telecom space with physical-layer chips, network processors, and switch fabrics. But Agere also overlaps Broadcom in two areas where Broadcom doesn't need much help: cell phone chips and wireless LANs.
Overall, analysts don't see much reason for Broadcom to absorb a company with a $2 billion market capitalization and a recent history of struggles. Agere is on the defensive, having disappointed in consecutive quarters due in part to a 3G handset rollout that just refuses to happen (see Agere Suffers Hutch Hiccup and Agere Stung by 3G (Again)).
A merger "would not make sense from the financial point of view, in terms of the impact it would have on Broadcom's valuation," says Dushyant Desai, an analyst with CE Unterberg Towbin. "It's better for Broadcom to compete with and maybe displace Agere."
Analysts were cheered recently by Agere's initiation of some cost-cutting efforts. Agere recently announced it would cut 500 jobs from its roster of 6,600. Another 600 will go if a buyer can't be found for Agere's Orlando fab, which the company pledges to close by the end of December 2005 (see Agere Wields Jobs Axe). Agere separately plans to close offices in Maine, New Jersey, and the Netherlands.
â€” Craig Matsumoto, Senior Editor, Light Reading
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