Avago acquired Broadcom for $37B and Intel is set to acquire Altera for $16.7B.
Why is this interesting?
We’re used to seeing Broadcom as a buyer of companies (many of them Israeli) but it’s a surprise to see that it was bought by a company half its size. More importantly, this move is a sign of things to come in terms of consolidation in the Semiconductor industry, where big fish usually eat smaller fish (Intel and Altera) or where two big fish merge into (hopefully) a whale (Avago and Broadcom).
Why is it happening?
Two main reasons:
1) Developing new Semi, especially System on Chip (SOC), is extremely expensive. A project to create new generation of SOC can amount to as much as $250-500M, and because of the tough competition, the companies are forced to continue to develop new products. The Broadcom acquisition will save $750M in expenses to the combined company, which will significantly improve their financial performance.
2) The large buyers in the market (namely Apple and Samsung) are either doing some of the Semi in-house or willing to buy these critical components for their products only from a very small list of suppliers.
How will it affect the startup world?
Basically, this isn’t good news. There aren’t a lot of new startups formed in the area of Semiconductors these days, but companies like Avago and Broadcom are doing more than SOC. They are also potential buyers for our startups, so having less of them is not good. The effect of this deal may not be devastating, but it’s yet another sign that opening a Semi startup isn’t easy. Broadcom has acquired many Israeli Semi startups over the last 15 years and they have a strong development center in Israel. Its name will survive the acquisition, so maybe the change will not even be noticed.
Why the Tuna Effect?
To make you read this post.