SAN JOSE, Calif. – Hock Tan has made a lot of progress re-defining Broadcom Corp. in just a month since he acquired it for $37 billion in the semiconductor industry’s biggest deal to date. But the chief executive of the former Avago is not ready to provide details about what the new company looks like yet.
At a high level, Tan organized what is now Broadcom Ltd. into about 24 profit/loss divisions, considered the new company’s core businesses. Each has its own set of market and technology goals and a general manager reporting to him. He estimated they will report consolidated revenues of $3.55 billion in the April quarter, slightly below Wall Street estimates of $3.57 billion.
The next quarter “will be the trough for rest of fiscal year,” Tan said, noting his eight-inch fab is already building RF parts for the next-generation Apple iPhone in which he expects to win as much as 20% more sockets.
Tan also identified about $300 million in discontinued operations from the classic Broadcom Corp. “There’s more than one [non-core] business, [they are] not necessarily in wireless, but we really prefer not to divulge more details because we are running a process,” he said in his first quarterly call with analysts since the merger was announced in May.
“This is our initial cut, we will go aggressively into finding buyers, and may add businesses to the list later, but this is the Day 1 list we are chasing,” said Anthony Maslowski, CFO of the merged company.
Avago bought LSI Inc. in 2013 for $6.6 billion, one of the largest chip mergers at the time. It then sold pieces of LSI to Intel and to Seagate.
Separately, Tan says he now believes he “may be able to even beat” plans to cut $750 million in costs from the combined companies within 18 months. The cuts will carve a bowl-shaped trajectory with more of them falling at the beginning and ends of the period, less than a third of them in the current fiscal year.
Savings from expanded buying power with manufacturers such as TSMC will come “mainly in the middle six quarters,” Maslowski.
Broadcom’s set-top box and wireless connectivity groups remain intact, deemed “sustainable franchises” in the new company. Growth in the set-top group will come mainly from DSL and GPON gateways, he said. Avago’s FBAR filter technology “will improve [classic Broadcom] Wi-Fi modules to surpass performance of anyone else’s,” he said.
Wall Street analysts like the deal so far. “We believe the combined entity has the potential to grow revenue in line or slightly faster than the semi industry, led by dominant positions in a wide array of wired and wireless products. Additionally, we see significant cost synergies leading to [earnings/share] growth that meaningfully exceeds revenue growth,” said analyst Ross Seymore of Deutsche Bank in a report.
Employees who spoke under condition they not be identified said it’s too early to tell how the merger will go but executives are bullish.
“There’ll be some change in how we do things, not so much in technology but in admin and support functions that have to be melded -- We may have some tools that get consolidated, who knows,” said one veteran engineering manager.
When the merger was announced, Henry Samueli, co-founder of Broadcom, said he would work as the new company’s CTO to see how Broadcom’s SoC design re-use methodology could be spread to Avago’s products which tend to be less integrated. “After the deal closes we will see where we can leverage the centralized method and where we can’t – it’s still premature, but I think it will be a blended approach,” Samueli said in May.
“He’s got to learn the Avago technology…We’re in the phase where we’re still trying to figure things out and get them organized…but he’s very excited about it,” the engineering manager said.
Broadcom declined requests for interviews with Samueli and other executives.
— Rick Merritt, Silicon Valley Bureau Chief, EE Times