Five things to keep in mind if you have $120-or-so billion USD to spend on a company and actually want to succeed
So, you thought Hock Tan was done? Not by a long shot. The Broadcom Inc. CEO isn’t your typical high-tech industry leader. That’s very clear now. A few months after failing to clinch what was trumpeted as the biggest M&A transaction in the history of the semiconductor market, Tan stormed back with a different deal that heralds just how much of an impact his company will yet make on the technology industry.
[Editor's Note] AspenCore Media's editors took a close look at the recent collapse of Qualcomm-NXP Merger deal. Also included in this Special Project are an IoT/automotive market analysis piece by Junko Yoshida: Qualcomm-NXP Breaek-Up: There Will be Fallout and a financial analysis piece by Bolaji Ojo: Where Did Qualcomm Go Wrong?
The recently-announced — all-cash — $19 billion offer for CA Technologies stunned many technology industry observers because it takes Broadcom outside the conventional semiconductor segment and was, in many ways, completely different from the series of acquisitions Tan used to build the company into the top chipmaker it is today. The main surprise to many observers, including industry analysts, is that Broadcom is an entrenched chip supplier while CA Technologies is a software vendor.
Viewed from a different perspective, though, the CA Technologies deal makes sense. But even more important are the implications of the transaction for the high-tech market. The move marks the beginning of the natural shift in the consolidation of the technology (not just semiconductor) market and offers a peek into Hock Tan’s mind about the most important lessons he learned from the scuttled Qualcomm bid. Those lessons are already being and will form the basis of future deals; Broadcom raised more than $100 billion for the Qualcomm transaction and will be looking to use some of the funds for other deals.
The rest of the industry — hardware and software segments combined — should prepare for the Broadcom-Tan acquisition tsunami. A good understanding of what Tan learned from Broadcom’s failure to buy Qualcomm will help the industry anticipate his next moves, because these will likely impact market leaders. Here are five lessons we believe Tan took away from the Qualcomm deal:
1. Don’t Fight the U.S. Government: Once Donald Trump got involved in the Broadcom-Qualcomm deal and signaled opposition to the transaction, Tan swiftly walked away and has not openly expressed his view on the government’s move. Of course, he couldn’t have agreed with the U.S. government’s decision,but rather than head to court — and be locked down in a multi-year legal squabble — Tan kept his opinion to himself to avoid endangering future deals. Keeping quiet will help Tan sustain the goodwill his company has in government circles and demonstrate that Broadcom is not a Trojan horse for China as Trump has implied.
2. Keep the Strategic Vision: What can we expect next from Tan? He will keep Broadcom in acquisition-fueled growth mode and should be expected to be involved in other deals. This would be in addition to the planned $19 billion acquisition of CA Technologies. The CA Technologies deal heralds just how much Broadcom will continue to impact the technology industry.
3. America is Still Driving the Global Tech World: Tan learned quickly from the Qualcomm fiasco that the better acquisition deals exist primarily in the Western economies, which means “foreign” enterprises would always be at a disadvantage on nationalistic grounds. That’s why he quickly shifted Broadcom’s domiciliary back to the United States from Singapore. Now that Broadcom is a U.S.-domiciled enterprise it can bid for American and European companies and avoid the “national security” hurdles Trump placed on its path for the Qualcomm deal.
4. Semiconductor Consolidation is Nearing its Peak: Few mega deals make sense today in the chip world. Even Qualcomm, rather than venture into other deals after abandoning its pursuit of NXP Semiconductor, is embarking upon a massive shares-repurchase program rather than scour the market for other deals. Broadcom is seeking deals outside its core market and trying to make sure these fit into a broader industry direction. Hardware and software have been merging for a while, and it looks like Broadcom wants to lead the charge. Tan’s goal is to turn Broadcom into the world’s biggest technology company — not the world’s biggest semiconductor company.
5. Chart a Different Future for Broadcom: Of course, Broadcom may not be able to close the CA Technologies deal. Despite a solid agreement between the two parties, shareholders and the U.S. government may still scuttle the acquisition. So far, Broadcom has grown by buying other semiconductor vendors. As the market consolidation nears an end, though, — and as pickings become slimmer — Tan is swiftly shifting Broadcom’s operational focus; Hardware is good but hardware-software combo is even better. The new direction hasn’t been clearly defined but it’s the one an entire industry will eventually adopt.
— Bolaji Ojo is Editorial Director at ASPENCORE Media. The views expressed in this article are those of the author alone who promises to base his sometimes biased, possibly ignorant, occasionally irrelevant but absolutely stimulating thoughts on the subjective interpretation of verifiable facts alone. Any comments should be sent to the author at firstname.lastname@example.org .