Network Processing’s Game of Acquisitions

There are two possibilities when it comes to interpreting the spate of M&A activity that has hit the data networking silicon space over the past year: either the leaders of these companies know exactly what they are doing and are positioning themselves for a changing market, or they have no idea what they are doing and are looking to any means necessary to remain relevant in an increasingly software- and services-driven economy.

One thing is certain, though: the network processing industry will see a radical makeover in the next few years, with new leaders looking to dominate an increasingly fractured and ill-defined environment.

First, there is Qualcomm and Broadcom. The former recently rejected the latter’s $130 billion offer, saying it did not place enough value on the leading semiconductor provider for the mobile, IoT, automotive and edge computing industries. That’s pretty bold talk for a company that is currently suing one of its biggest customers, Apple, in a software-licensing dispute, which may or may not have anything to do with Apple reportedly looking to other chip suppliers for the iPhone and iPad. Regardless, Broadcom seems intent on getting Qualcomm, so it looks like the only question now is whether they can do it more cheaply by upping its friendly offer or launching a hostile bid.

Meanwhile, Qualcomm is on the hunt for acquisitions of its own, hoping to close its $38 billion buyout of automotive chipmaker NXP Semiconductors by the end of the year. The merger is under scrutiny by European regulators, however, and some NXP investors appear to be holding out for a better deal than Qualcomm’s $110-per-share offer. At the same time, the deal is expected to eat into Qualcomm’s cash reserves by a significant amount, which may be hard to recoup since the automotive chip market, while heating up, is already in the sights of firms like Intel, which recently lined up Alphabet as a key customer.

To make matters even more complicated, Broadcom recently closed its $5.9 billion take-over of Brocade that, due to regulatory concerns, led to the unusual step of Broadcom switching its corporate domicile status from Singapore to the United States. The Brocade deal had been languishing for a year, with the latest hurdle being approval by the Committee on Foreign Investment of the United States (CFIUS). As a U.S. company, Broadcom would face less of a regulatory burden. Broadcom was, in fact, a U.S. company until 2016 when it was bought by Singapore’s Avago Technologies, and it still maintains a headquarters in San Jose, California. 

It’s important to realize, however, that the Brocade that Broadcom is buying is a fraction of what existed only a few years ago. In order to satisfy anti-competitive concerns, Brocade has been selling and/or spinning off business units at a rapid pace, the latest of which is the sale of its data switching, routing and analytics lines to Extreme Networks. Prior to that, the company sold its Ruckus Wireless and ICX switch business to Arris and created a new company called Lumina Networks to handle its SDN products. This basically leaves Broadcom with Brocade’s Fibre Channel switching lines, which have seen a slump in sales recently as enterprises convert to more flexible storage fabric technologies.

This ongoing game of musical networking chip companies makes it difficult for networking hardware and mobile systems companies to chart their product roadmaps. While there will always be a chip architecture available from someone, product stability through successive generations is usually predicated on how well their silicon layers communicate.

But this is what happens in times of momentous change. All technologies need a reliable business foundation in order to have an impact on the broader market, so putting the ownership questions of the leading chip providers in order is step one in the goal of creating a more productive industry.

This is by no means an easy task, however, since it is subject to often-fuzzy projections and gut feelings as to the future evolution of data-driven revenue streams. And in the end, success is never guaranteed, even for people who are confident they know what they are doing.

Arthur Cole is a freelance journalist with more than 25 years’ experience covering enterprise IT, telecommunications and other high-tech industries.


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