Category Archives: 3G

Attention Shifts to Cavium After Broadcom’s Announced Buy of NetLogic

As most of you will know by now, Broadcom announced the acquisition of NetLogic Microsystems earlier this morning. The deal, expected to close in the first half of 2012, involves Broadcom paying out $3.7 billion in cash, or about $50 per NetLogic (NETL) share. For NetLogic shareholders, that’s a 57-percent premium on the company’s closing share price on Friday, September 9.

Sharp Premium

The sharp premium suggests a couple possibilities. One is that Broadcom had competition for NetLogic. Given that Frank Quattrone’s investment bank, Qatalyst Partners, served as an adviser to NetLogic, it’s certainly possible that a lively market existed for the seller. Another possibility is that Broadcom wanted to make a preemptive strike, issuing a bid that it knew would pass muster with NetLogic’s board and shareholders, while also precluding the emergence of a competitive bid.

Either way, both companies’ boards have approved the deal, which now awaits regulatory clearance and an approbatory nod from NetLogics’ shareholders.

In a press release announcing the acquisition, Broadcom provided an official rationale for the move:

Deal Rationale

“The acquisition meaningfully extends Broadcom’s infrastructure portfolio with a number of critical new product lines and technologies, including knowledge-based processors, multi-core embedded processors, and digital front-end processors, each of which offers industry-leading performance and capabilities. The combination enables Broadcom to deliver best-in-class, seamlessly-integrated network infrastructure platforms to its customers, reducing both their time-to-market and their development costs.”

Said Scott McGregor, Broadcom’s president and CEO:

“This transaction delivers on all fronts for Broadcom’s shareholders — strategic fit, leading-edge technology and significant financial upside. With NetLogic Microsystems, Broadcom is acquiring a leading multi-core embedded processor solution, market leading knowledge-based processors, and unique digital front-end technology for wireless base stations that are key enablers for the next generation infrastructure build-out. Broadcom is now better positioned to meet growing customer demand for integrated, end-to-end communications and processing platforms for network infrastructure.”

“Today’s transaction is consistent with Broadcom’s strategic portfolio review process and with our focus on value creation through disciplined capital allocation while delivering best-in-class platforms for customers in the fastest growing segments of the communications industry.”

Sensible Move for Broadcom

Indeed, the transaction makes a lot of sense for Broadcom. Even though obtaining NetLogic’s technology for wireless base stations undoubtedly was a key business driver behind the deal, NetLogic addresses other markets that will be of value to Broadcom. Some of NetLogic’s latest commercial offerings are applicable to data- plane processing in large routers, security appliances,  network-attached storage and storage-area networking, next-generation cellular networks, and other communications equipment. The deal should Broadcom bolster its presence with existing customers and perhaps help it drive into some new accounts.

NetLogic’s primary competitors are Cavium Networks (CAVM) and Freescale Semiconductor (FSL). Considering Broadcom’s strategic requirements and the capabilities of the prospective acquisition candidates, NetLogic seems to offer the greatest upside, the lowest risk profile, and the fewest product overlaps.

Now the market’s attention will turn to Cavium, which was valued at $1.51 billion as of last Friday, before today’s transaction was announced, but whose shares are up more than seven percent in early trade this morning.

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Guarded Optimism on Alcatel-Lucent

Since being created as a result of the 2006 merger of the two companies that confer its name, Alcatel-Lucent has struggled unsuccessfully to reach profitability. It’s still struggling for financial stability, but some market watchers and analysts believe there’s light at the end of the tunnel. What’s more, they believe the light in question isn’t coming from an onrushing train.

There is reason for guarded optimism. Operationally and strategically, Alcatel-Lucent is on firmer ground than it has been for quite some time, even in the face of stiff macroeconomic winds and a chronic component shortage that has affected the company’s ability to deliver products.

You’ll notice, though, that I employed a qualifying adjective in the first sentence of the preceding paragraph. Alcatel-Lucent still has work to do.

The company depends on the sustainability of a real broad-based recovery in the global economy — carriers will constrain their network-infrastructure spending if they believe smartphone-toting consumers will curtail their consumption of data-rich applications and data services — and it must work harder to make headway in emerging markets. In the latest quarter, North America carried the day for AlcaLu, and numbers everywhere else were down.

Moreover, as Ray LeMaistre notes and documents at Light Reading, Alcatel-Lucent needs better growth from its Applications and Services divisions, which are strategically important to the company’s long-term prospects. AlcaLu is looking to differentiate itself from lower-cost Chinese network-equipment rivals such as Huawei and ZTE by providing software-led value with its Application Enablement strategy, buttressed by its Developer Platform and its Open API Service.

By bringing developers and carriers together, and providing integration services bridging the two camps, Alcatel-Lucent hopes to make itself more valuable to both. There’s still time for the strategy to play out, but higher rates of growth from those parts of the business would be encouraging.

Dell’Oro Forecasts Growth in Chinese Wireless-Infrastructure Spending in 2010

Primarily as a result of a decrease in 3G deployments in China, the worldwide market for wireless-network infrastructure declined 10 percent in the third quarter on a year-over-year basis, according to market researcher Dell’Oro.

Said Dell’Oro in a statement quoted by Reuters:

“While 3G spending in China is expected to stay depressed for the remainder of this year … heavy spending by China Unicom and China Telecom is expected to resume in 2010, and will be a prime contributor to both the WCDMA and CDMA markets.”

In this year’s third quarter, the market was worth $9 billion in revenue. As reported by FierceWireless, Ericsson’s share of the market remained steady, but Huawei gained share on Nokia Siemens Networks. Recently, Alcatel-Lucent won contracts worth approximately $1.7 billion to provide network upgrades, infrastructure, and services for China Mobile and China Telecom.

As in many other industries, telecommunications-equipment vendors seeking revenue growth will have to go to China to find it.