Photograph by Angel Navarette/Bloomberg
By Stacey Higginbotham
May 27, 2015

Avago Technologies (AVGO) is in advanced talks to acquire wireless chipmaker Broadcom, according to The Wall Street Journal. Broadcom, which produces a variety of radios for cellphones and other consumer devices, had a market cap of $28 billion before the takeover report surfaced. Broadcom also makes chips used in networking gear for the data center, and both business lines could compliment Avago’s more industrial and component-level focus.

Avago was created when private equity firms Silver Lake and Kohlberg Kravis Roberts & Co. (KKR) purchased the Agilent chip assets in 2005 to create a new rollup in the semiconductor market. It has since acquired other companies like LSI, and was reportedly looking to spend about $10 billion buying another chipmaker like Xilinx (XLNX), Renesas Electronics or Maxim Integrated Products (MXIM). Avago makes a variety of analog and mixed-signal chips used in automotive, industrial and communications applications. It also makes custom-designed chips known as ASICS that are used in networking.

Broadcom would be a large company to swallow, but the industry is consolidating. As I wrote two weeks ago:

The industry is experiencing a wave of consolidation as several trends converge. In the data center, there are fewer customers as more computing power is held in the hands of the large cloud computing providers and giants in the industry. They are designing and building their own equipment, causing pressure in the server manufacturing space, as well as dictating their semiconductor specifications and needs. This began in computing, but it will trickle down into components and communications gear as well.

In the industrial and consumer world, the Internet of things is pressuring chipmakers in a number of ways, even as it represents a huge opportunity to sell more silicon into more devices. Companies are trying to integrate microcontrollers and radios and sensors all on one chip, which means they are buying firms to bring that expertise in house.

If Avago does snap up Broadcom, then the next obvious question for the silicon industry will be what happens to Marvell (MRVL). It too offers Wi-Fi radio, storage, and communications chips, and is much smaller in terms of sales. In this era of consolidation, will it remain independent much longer?

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