Fresh off of its purchase of Broadcom, Avago is eyeing another acquisition -- that of fellow semiconductor vendor Marvell, Light Reading has learned.
A reputable source tells us that Avago Technologies Pte. is looking to make a bid for Marvell Technology Group Ltd. (Nasdaq: MRVL). Marvell is a direct competitor to Broadcom in several key market areas, including home networking and wide area networking equipment. Avago announced in May it was acquiring Broadcom for $37 billion. (See What Will Avago Do With Broadcom? and Avago Seals Deal to Buy Broadcom for $37B.)
Avago has been on an M&A binge of late as it also purchased Emulex in February and LSI for $6.6 billion in December 2013, although it divested much of LSI to Intel Corp. (Nasdaq: INTC) and Seagate Technology LLC (Nasdaq: STX). (See Avago Eyes Enterprise Storage With Emulex Buy and Avago to Buy LSI for $6.6B.)
Heavy Reading analyst Simon Stanley, who covers the chip market, has not heard the rumor, but notes that Marvell is one fifth the size of Broadcom, so market cap shouldn't be an issue, especially once Avago has Broadcom's buying power under its belt. Yet whereas Avago and Broadcom were primarily complementary, Broadcom and Marvell have significant overlap.
"If I was a customer I would be concerned about the reduction in competition," Stanley comments. "On the other hand it would help Avago build a dominant position in these markets."
If it is true, however, he says Avago could be following the model of how Cisco Systems Inc. (Nasdaq: CSCO) operated in the 1990s: "acquire; market cap grows by a bit more than the sum of the two, which means they could acquire someone bigger, and the fact [that] you are growing fast means your shares go up more, so you can afford something bigger still."
It's lifting yourself up by the bootstraps, Baines says, "but it is a pretty grueling routine, and I am not sure investors would feel comfortable."
Avago was spun out of Agilent in 2005. It has a history with Marvell as well. Marvell actually acquired Avago's printer semiconductor business back in 2006 for $240 million. (See Agilent Becomes Avago and Avago IPO's a Go.)
Neither Avago nor Marvell responded to a request for comment at the time of publication.
— Sarah Thomas, , Editorial Operations Director, Light Reading