
Avago to buy Broadcom for $37B in biggest-ever chip deal - wrongc0ntinent
http://www.reuters.com/article/2015/05/28/us-broadcom-m-a-avago-idUSKBN0OD18120150528
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tw04
This summarizes the deal:

>As of 2014, Broadcom had $3.13 billion of cash and cash equivalents held by
its foreign subsidiaries, and it deferred about $4.85 billion in tax on un-
repatriated foreign earnings, according to SEC filings. Selling to a
Singapore-based firm will free the foreign cash and help eliminate potential
U.S. tax liabilities.

F. You. The deal is predicated on avoiding paying US taxes. "I know we built
our business on the luxury of a developed western nation that provided ample
education for our founders, but we'd like to avoid actually paying for that
luxury now, because we no longer benefit from it." I hope the USJD bends them
over a barrel on the taxation before this is allowed to close. But who am I
kidding, green light baby! Let it burn!

~~~
immad
It is extremely disappointing that this is the top comment on Hacker News.

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CountSessine
Why? Is tax evasion not relevant?

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geomark
Tax _avoidance_ , perfectly legal and one of the duties of company management.

Tax evasion is illegal. This isn't it.

~~~
e12e
It may be legal, but it can still be considered anti-social and short-sighted.

~~~
geomark
It's not just legal, it is a fiduciary responsibility of the management of a
publicly traded company to minimize its tax burden. To not do so is negligent.

If they feel that they can maximize shareholder value by headquartering in a
high tax location then they do so. Part of that may include fostering an image
of social responsibility and vision.

On the other hand, if they feel that the company should pay more taxes than
required just because, then instead of negligently continuing to operate in an
unfavorable tax environment they should bring it before the shareholders and
if they support it set up a foundation or charity to do so. Make it explicit
that they are paying more than required to the US government because 'merica.

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rpcope1
Just from my own experience, when LSI was bought up by Avago, a lot of the LSI
guys around here complained that it was a rather rough transition. Avago seems
to like buying up companies like this and piecing them out, like how a lot of
LSI's storage controller related assets were sliced off and sold to Seagate
after being acquired by Avago; I'm not sure if this is a good thing for
Broadcom.

~~~
MCRed
Companies tend to accumulate multiple product lines. It seems Avago's strategy
is to buy companies with high growth products, then sell off the less high
growth product lines to others (which probably helps finance the acquisition
to some extent).

Put another way, he's exploiting management's tendency to not focus on high
growth products, by not selling off the profitable, but slower growing
products themselves.

The result of this is that the high growth is diluted over a broader base
revenue made up of slower growth companies... which lowers the companies value
to investors (PEG is a common measure of the value of a company, which is
combination of price, earnings and growth, so growth increases the multiple.)

If there were no friction this would be good, because the slower growing
products will be merged with other companies who probably have the same
product line, and then they can be combined to produce another generation that
has the best of both previous companies products.

Alas, there is always friction in human things and thus this strategy has risk
for all involved,

~~~
sitkack
So like the 80s.

~~~
theseatoms
What happened in the 80s?

~~~
gaius
Gordon Gekko

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jsingleton
I wonder how this will affect the Raspberry Pi foundation. They use Broadcom
SoCs and seem to have a pretty good relationship with them.

~~~
astrodust
The good news is they're not stuck with a single vendor, they could
_theoretically_ go to any company with an ARM license and get a compatible
chip. If they were feeling ambitious they could even get their own chip made
by someone like TSMC or Samsung.

~~~
alexandros
It's not that simple. Research the story of the ODROID-W and their quest to
make an rpi-compatible SBC.

~~~
fragmede
Can you be more specific? All I'm finding is they made the ODROID-W using a
specific Broadcom SoC, and Broadcom refused to supply them with it, so
Hardkernel had to stop making the ODROID-W _after_ their first production run.

That seems to say that theres not a technical issue with making an rpi-
compatible SBC but a political one.

~~~
voltagex_
The best I can find is
[https://www.raspberrypi.org/forums/viewtopic.php?f=62&t=8564...](https://www.raspberrypi.org/forums/viewtopic.php?f=62&t=85645&p=604884&hilit=odroid),
which is pretty funny but not very informative.

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tptacek
TIL (I think?): Avago is the spun-off semiconductor division of Agilent, plus
LSI and Emulex (minus, it seems, all the parts of those businesses that don't
produce chipset products).

I think? this makes Avago the largest chipset vendor.

~~~
rayiner
TIL too. My response was: "what the heck is an Avago and how is it big enough
to buy Broadcom?!"

I don't really get the trend of taking well-established brands and changing
their name to something nobody recognizes. This gets me all the time with
Leidos too (i.e. SAIC).

~~~
nicklaf
From TFA: "After the deal the combined company would be named Broadcom,
sources close to the deal told Reuters."

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angersock
Hah, kind of like when Rackables became SGI.

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vl
This is just stupid. Rackable was already way better known brand in
datacenters/cloud than SGI. Who nowadays even remembers SGI?

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angersock
Fine, fine...when NeXT was paid to take over Apple, if that helps you feel
better. :)

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phaemon
Does anyone know what Avago's attitude towards Open Source is? Any chance we
might get some decent drivers for Broadcom gear?

~~~
rpcope1
Given past experience with both Avago and Broadcom, I don't think I would hold
your hopes too high; I would bet money that the current attitude you get from
Broadcom about drivers will continue if not get worse. Most vendors in the
hardware sphere tend to be rather protective of everything they do (fairly or
unfairly), and pretty old school,and that sort of attitude doesn't really play
well with our open source/libre desires for more transparency in things like
drives.

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randomname2
The reason for the deal: as the WSJ noted yesterday, "growth has been hard to
come by for Broadcom, a 24-year-old company that makes communications chips
for tablets and smartphones, and supplies the Internet links for cable-
television and telecommunications devices." As to why Avago is likewise
excited to close the deal, "Avago has been likened to health-care companies
such as Valeant Pharmaceuticals International Inc. that are based in foreign
tax jurisdictions and also have become voracious acquirers." So Broadcom is
merely the latest "notch on the bedpost", funded with billions in new debt.

The press release also mentions $750 million "synergies" in the next 18 months
which should translate to about 2000-3000 layoffs.

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limeyx
"no no no, you're not being laid _off_ oh heavens no, you're being 'synergied"
now give me your key fob and get out" ...

~~~
tw04
They don't have to lay ANYONE off. That's the beauty. They just conveniently
avoid paying any US taxes on a "shitload" (technical term) of income, because
they aren't a US company - and Broadcom has avoided repatriating income for
precisely this reason.

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Swannie
They note the mobile chips - but those are sold cheap.

More importantly is the fact that Broadcom's switch chips have pretty much
become the de-facto chipsets used in data center switches from most vendors.
They are quickly becoming the Intel of DC switches. And these chips, are not
so cheap (though true, there are fewer of them, but the margins are much more
attractive).

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trsohmers
The number of large semiconductor acquisitions in the past year has been
pretty insane... just further consolidation with very few new semi startups
coming out.

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silverpikezero
You should expect this trend to continue. Semiconductors have become a
hideously expensive business, aggravated by fewer fabs and more draconian
fab/IP acquisition costs. It's a well known that nobody on Sand Hill road will
touch semiconductor startups at all, leading to a stagnant collection of
semiconductor companies founded 20+ years ago. There was recently announced a
semi-only incubator here in SV[1] because nobody can raise any traditional VC
money, although time will tell how many successful exits it will have.

[1]
[http://www.eetimes.com/document.asp?doc_id=1326501](http://www.eetimes.com/document.asp?doc_id=1326501)

~~~
bsder
> although time will tell how many successful exits it will have.

And that's exactly the problem. Semiconductors has no exit.

Atheros was probably the last company to go from startup to big hit, and look
how long it took them to exit.

Why will a VC throw money at a company that has a 5 year exit, at best, when
they can throw a lot less at stupid 20-somethings, flog them like slaves, and
sell to Yahooglezonsoft.

~~~
loosescrews
What about SandForce? They were founded in 2006 (vs 1998) and acquired in 2012
(vs 2011).

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desdiv
iANAL, but isn't this another case of tax inversion[0]?

Singapore does not tax profits generated outside of its borders (unless
repatriated).

[0]
[https://en.wikipedia.org/wiki/Tax_inversion](https://en.wikipedia.org/wiki/Tax_inversion)

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ausjke
First Motorola, Freescale, now Broadcom, who will be the next?

Marvell? or AMD? The latter is really cheap though.

World is changing so fast these days. Will USA be left with companies like
Facebook/Twitter and we will all end up doing social-activities using devices
invented/made elsewhere and feel great about them?

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chdir
The story of Henry Nicholas, Broadcom's co-founder :
[http://www.vanityfair.com/news/2008/11/nicholas200811](http://www.vanityfair.com/news/2008/11/nicholas200811)

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chx
Well, that is interesting. I wonder how much R&D will continue and in
particular what happens to Gottfried Ungerboeck (inventor of trellis
modulation). This will be interesting to watch.

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dopeboy
Used to intern for them in the summer of 2008. Always felt the good times had
passed (early 2000s) with Qualcomm as their arch nemesis.

~~~
Nelson69
At Broadcom? I'd echo that, the late 1990s and early 2000s were definitely
when they were undergoing radical growth. They tended to pay lower wages but
everyone was okay with it because they were making tons on the stock. I never
worked for them but worked closely with them. They had an intensity about
them...

It seems like they've lost a bit of their mojo, everyone, it seems, builds
custom ARM chips now... Back in those days they could pretty easily target a
vertical, graft a few chips together and sell a specialized solution that was
pretty compelling.

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hajile
I wonder if the US government will be okay with such a large chipmaker to be
owned by a Singapore company. Historically, they haven't been too keen on
exporting chip tech.

If Qualcomm is on the table, it seems more likely to be approved.

~~~
adventured
They'll have absolutely no problem with it.

Avago is an American company masquerading as a Singapore company. It's
controlled by US money, and it also has a joint HQ in San Jose.

1) "The company was founded in 1961 as a semiconductor products division of
HP. The division separated as Agilent Technologies in 1999"

2) "KKR and Silver Lake Partners acquired the division of Agilent Technologies
in 2005 for $2.6 billion and formed Avago Technologies"

3) Major shareholders: JP Morgan, FMR, Blackrock, Capital Group, Vanguard,
etc. - it's almost entirely controlled by US money interests.

~~~
dba7dba
I disagree they will have no problem with it. Maybe NSA but not Senators.

This deal is basically a form of tax inversion. Or is Avago paying all US tax
because of the joint HQ in San Jose?

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adventured
I agree that some Congress members might want to be annoyed by this, but
nothing will come of it. It's not a tax inversion in legal terms at all, it's
a straight acquisition (there are important distinctions there). Avago was
smart to pay a lot of cash as well, to push Broadcom shareholder's ownership
position down to about 1/3 (keeping it far away from the tax inversion lines).

Here's why:

"Thursday’s deal isn’t impacted by the Treasury [inversion] guidelines, says
Willens, because Broadcom shareholders will own less than 60% of the stock of
the acquiring corporation. It’s also not by definition an inversion since
Avago is the acquirer, but the result the same. “Here all of the “normal”
benefits of an inversion should be freely available,” Willens concludes."

[http://www.forbes.com/sites/antoinegara/2015/05/28/could-
ava...](http://www.forbes.com/sites/antoinegara/2015/05/28/could-avago-become-
the-valeant-pharmaceuticals-of-the-semiconductor-sector/)

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jasonmp85
IANAAnalyst, but the company with probably the most components in devices in
the entire world is being sold for about 1.6x what WhatsApp went for? Crazy
times.

~~~
tw04
Funny money in both cases. Facebook is more than happy to give "value * x" in
stock - because at the end of the day, stock is monopoly money.

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dmritard96
just started dealing with avago a few weeks ago, before that had never heard
of them. seems like they do a lot of buy and splits to get the really
profitable/strategic pieces and sell of the remainders

