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Comms chips

NetLogic Fits Broadcom's Master Plan

Broadcom Corp. (Nasdaq: BRCM) sought a processor acquisition for "a couple of years" before settling on NetLogic Microsystems Inc. (Nasdaq: NETL), according to Henry Samueli, the company's chief technical officer and a founder.

"We looked at startups. We looked at public companies. We looked at everybody," he tells Light Reading.

In many cases, though, the other company didn't want to sell.

NetLogic finally said yes, but the deal announced Monday sounded awfully expensive: $3.7 billion, or about 50 percent higher than NetLogic's market valuation. (See Broadcom to Buy NetLogic for $3.7B.)

"You've got to look at their financial model. They're one of the healthiest companies out there," Samueli says. "Given that they're doing extremely well and are on an extremely good growth path, they commanded a high premium."

Broadcom was probably going to have to grab a public company if it wanted to acquire processors, says Linley Gwennap, principal analyst with The Linley Group . Processor startups are relatively rare these days, and they don't come with the track record and installed base of Cavium Inc. (Nasdaq: CAVM) or NetLogic.

Even so, the size of the NetLogic deal was a surprise. "This is out of Broadcom's MO [modus operandi]," Gwennap says. "They generally acquire smaller companies."

Broadcom has been slowly adding wireline networking pieces lately, picking up Dune (switch fabric) and Teknovus (GPON) during the past couple of years. (See Dune Digs In at Broadcom , Broadcom's Thinking Gets Cloudy and Broadcom to Acquire Teknovus.)

The company's goal in any market is to own a lot of key chips -- to "control as much of the platform as possible," as Samueli puts it. When you think of it that way, processors have been an obvious gap in Broadcom's wireline collection for a long time. The company has been a powerhouse in Ethernet chips, but that's just not the same.

"The processor is the center of the universe," Gwennap says. "Maybe the reason we've taken Broadcom for granted in that space is because they don't have the processor."

Everyone's now talking about Marvell Technology Group Ltd. (Nasdaq: MRVL) possibly buying a processor company -- a theory about as obvious as they come, because "anything Broadcom wants to do, Marvell wants to do," Gwennap says.

Cavium would be an obvious target. Some analysts also theorized about EZchip Technologies Ltd. (Nasdaq: EZCH), which sent that company's stock up 11 percent on Monday.

— Craig Matsumoto, West Coast Editor, Light Reading

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