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Broadcom acquisition shakes embedded comms market

Posted: 15 Sep 2011 ?? ?Print Version ?Bookmark and Share

Keywords:acquisition? embedded communications? processor industry?

The communication processors industry has been taken aback with Broadcom Corp.'s acquisition of NetLogic Microsystems Inc. for $3.7 billion. The deal has provided the company a solid entry point to the market, presently dominated by Freescale, Intel and Cavium Networks.

NetLogic ranks fourth in embedded processors for communications devices that include routers, switches and base stations with five percent market share. Freescale has 45 percent, Intel, 23 percent, and Cavium at nine percent, according to Linley Group. "It's pretty surprising because Broadcom has not generally done these sorts of big acquisitions and this wasn't a segment where we thought Broadcom was that focusedthey have looked more on consumer segments for growth," stated Linley Gwennap, principal of the Linley Group.

Before the deal, Broadcom had no position in embedded communications processors that make up the majority of NetLogic's business. The fact that both companies are heavy users of MIPS cores opens up other synergies in the future, noted Gwennap.

Broadcom CTO tackles NetLogic buy
According to Broadcom's CTO Henry Samueli, for three to five years, the company has wanted to expand into the high-end embedded processor space. They felt that NetLogic has the best roadmap for Broadcom's plans. Read more about what Samueli has to say about Broadcom's NetLogic acquisition.

Although NetLogic trails competitors in market share, a big chunk of its business is with the top players. Cisco made up more than 20 percent and China's fast-rising players Huawei and ZTE made up about 15 percent each of NetLogic's business in its last six months of reported sales.

Broadcom's bid is in part a bet on the future. NetLogic's XLP processors are expected to leapfrog Cavium's Octeon II products that are touted to be technically superior and ahead in the market compared to NetLogic's existing XLR and XLS chips. NetLogic just started shipping its XLP chips and has announced their upcoming line, the eight-core, quad-threaded XLP II that will sample next year.

The XLP is expected to offer similar performance to the Octeon II. However, the NetLogic part can be combined with more chips in a multiprocessor arrangement to hit higher performance levels than Octeon, Gwennap said.

Broadcom "strengthens NetLogic and makes them more viable," on many fronts, he added. Broadcom can improve NetLogic's access to the leading 40 and 28nm process technologies used for the XLP chips. Broadcom can also wrap its broad portfolio of other communications chips around the parts to reach more deeply and broadly into OEM systems makers.

The deal marks a break from Broadcom's tuck-in style of buying small, hot startups that give it an instant position in emerging technology that can later be integrated into its broader chipsets.

NetLogic's big price tag stems in part from its robust revenue growth. Its sales nearly doubled last year after two major acquisitions and is expected to rise more than 10 percent this year.

The deals helped double NetLogic's revenues but also sank its fledgling profits that had just crossed into black after several years of losses. The company reported a net loss of $66.4 million and $47.2 million during 2010 and 2009, respectively.

NetLogic resumed its acquisitions in April this year when it bought Optichron Inc., a provider of 3G/4G LTE base station digital front-end processors for $77.2�million.

Broadcom may have chosen NetLogic over Cavium in part for the diversity of getting layer-7 and wireless base station chips along with the embedded communications processors, Gwennap stated. Now that Broadcom passed over Cavium, it's not likely that company will find another suitor.

- Rick Merritt
??EE Times

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