Broadcom: Semiconductors, M&A's, and Bold Leadership

Broadcom is a name many recognize due to its chipsets' presence in devices like Samsung's Galaxys and Apple's iPhones. However, few know the story of this global semiconductor company, beginning as a division within HP and expanding through a series of strategic acquisitions and mergers. Let's explore the journey of this M&A king and its pursuit of market dominance over the last decades.

• Acquisitional blueprint: Broadcom often targets companies that lead in niche markets, face limited competition, and supply essential components to large customers.

• Wide product offering: With a strong history of diversification, Broadcom's product portfolio stretches across a wide range of solutions for systems and devices.

• Visionary CEO: Hock Tan, the CEO of the semiconductor giant, has been guiding the company for nearly two decades.

For a complete background of the story of what we now know as Broadcom we need to go back and follow two parallel stories that first intertwined in 2016.

The complex history of Broadcom began at Hewlett-Packard (HP) in 1961, as the company started a new division to develop technologies to support its test and measurement equipment, computers, and printers. In 1999, the division, which included the electronic measurement and semiconductor businesses, was spun off as Agilent Technologies. At this time, the company's semiconductor arm focused on optoelectronics and wireless communication.

In 2005, Agilent sold its semiconductor products group to private equity firms KKR and Silver Lake Partners for $2.66 billion, leading to the creation of Avago Technologies. While Avago continued to focus on analog and optoelectronic components, it also adopted an aggressive growth strategy through strategic acquisitions. These acquisitions greatly expanded the company's product portfolio and market presence. Hock Tan, who was appointed CEO of Avago early on, remains the CEO of Broadcom today—a testament to the success of his early empire-building efforts.

The other part of the story behind this global semiconductor company dates back to 1991 when Henry Samueli and Henry Nicholas founded Broadcom Corporation. The pair, who met at UCLA's engineering graduate school, set out to develop semiconductor solutions for networking and communications, aiming to meet the growing demand for high-speed data transfer as the internet began to take off. Broadcom quickly gained recognition by creating innovative chipsets that became integral components of broadband communication technologies.

Throughout the early 2000s, Broadcom rapidly expanded into a respectable force in the fast-growing semiconductor industry. Similar to Avago, it acquired several companies to diversify its offerings and enter new markets. These acquisitions fueled Broadcom's ongoing innovation, leading the development of chipsets for a wide range of technologies, including Wi-Fi, Bluetooth, and Ethernet networking.

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Finally, in 2016, the two semiconductor companies converged when Avago acquired Broadcom Corporation for $37 billion. The merger was structured as a reverse takeover, with Avago as the acquirer, but the combined entity adopted the Broadcom name due to its strong brand recognition. Interestingly, at the time of the deal's announcement, Avago's market capitalization was slightly less than the offer value, standing at $36 billion.

The transformative deal created one of the largest semiconductor companies in the world. It combined Avago's strength in storage, networking, and industrial solutions with Broadcom's expertise in wired and wireless communications, particularly in chips for smartphones, set-top boxes, and broadband.

Hock Tan was appointed CEO of the newly merged company. Henry Samueli took on the role of CTO and joined the board of directors, while Henry Nicholas assumed a strategic advisory position within the combined entity.

As of today, Broadcom holds a vast product portfolio, serving a wide range of sectors and a diverse customer base. With its semiconductor business, it operates as a fabless design company, focusing on design and innovation while outsourcing manufacturing to foundries such as TSMC and GlobalFoundries. This strategy enables Broadcom to leverage advanced manufacturing capabilities without the expense and complexity of maintaining its own fabs.

Further reading: Understanding the Semiconductor Value Chain: Key Players & Dynamics

Broadcom's semiconductor solutions are embedded in a wide range of devices and systems, from home routers and smartphones to servers and storage systems. The company is particularly recognized for its advancements in wireless connectivity, including Wi-Fi and Bluetooth technologies. In addition, Broadcom provides networking solutions such as Ethernet switches and controllers, serving notable clients like Dell, Apple, HP, and Raspberry Pi.

In the broadband sector, Broadcom's chipsets power modems, set-top boxes, and other equipment. In the smartphone market, the company provides key components such as radio frequency front-end modules and wireless charging systems, with its technology featured in devices such as Apple's iPhone and Samsung's Galaxy. Additionally, Broadcom's products are used in 5G infrastructure, facilitating faster and more reliable mobile networks.

Beyond semiconductors, Broadcom's portfolio extends into software and infrastructure solutions. With the help of strategic acquisitions such as CA Technologies in 2018 and Symantec's enterprise security business in 2019, the company has continued the diversification of its business. The company now offers a range of software solutions for data centers, cybersecurity, and mainframe computing, in addition to its core semiconductor products.

Since Avago's inception, Hock Tan has served as its visionary CEO, transforming the company from an Agilent Technologies spin-off into the global technology giant now known as Broadcom. Tan's leadership style is often described as bold and highly disciplined, marked by an unwavering commitment to profitability and market dominance. This approach is evident in his track record of successful acquisitions that have built the high-margin, diversified semiconductor company.

Tan and Broadcom often target companies that dominate niche markets, face limited competition, and supply essential components to major customers. This aggressive strategy has been key to Broadcom's success over the years, securing its market presence and solidifying its position in the semiconductor industry.

This effective, yet sometimes controversial, business model has led to several high-profile legal disputes. Competitors, clients, and regulators argue that the company abuses its monopoly power, while Broadcom claims it merely diversifies its business with relevant products and expertise.

The journey from the two origin points of this story to what Broadcom has become today is truly remarkable. Through strategic acquisitions and continuous innovation, the company has established itself as one of the largest in the rapidly evolving semiconductor industry. Under Hock Tan's bold leadership, Broadcom has transformed into a global semiconductor conglomerate, with its technology powering devices across the world.

Furter reading: Qualcomm: Quality Communication and Semiconductor Innovation