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Monday, July 16, 2018

Broadcom deal sees return of vertical integration

By Nick Flaherty

The $18bn acquisition of CA Technologies marks a major change for Broadcom and a turning point in the industry.

The deal highlights a move back to vertical integration in the industry. While Amazon and Apple have bought chip designers, now the chip designer is buying a service provider. As the cost of chip design and manufacture increases at 10nm and below, companies are looking to benefit from the margins further rup the value chain, and vertical integration is coming back as a result. This deal marks a signficant move in that trend for electronics companies.

Broadcom has always grown by acquisition, driven originally by Henry Nicholas and Henry Samueli, and later after it was itself acquired by Avago after a series of scandals. But the deals have always been at the component or embedded technology level.

The CA deal is much more about mainframes and enterprise software and services, and Broadcom is a mojor supplier of networking devices and systems for data centres. The deal is also about protection after the ambitious bid to acquire Qualcomm. Failing to create a chip giant leaves Broadcom vulnerable to other players in the market, which CEO Hock Tan knows all too well.

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