Broadcom is turning to software following its unsuccessful attempt to take over Qualcomm, with the company announcing an acquisition of New York City-based CA Technologies valued at almost $19 billion earlier this week. Yesterday's bid announcement prompted widespread skepticism from investors who plummeted Broadcom's stock by nearly 35 points, with the company ending Thursday trading at under $210. The technology giant is still unphased by the development and remains adamant to execute its new strategy focused on enterprise software service providers, i.e. buying as many such companies as possible and combining them into a single, more efficient entity, CNBC reports, citing sources close to Broadcom.
The San Jose, California-based firm may see software as a safer M&A avenue than chips, especially after its unsuccessful move for Qualcomm left it with the largest acquisition failure in CEO Hock E Tan's twelve-year tenure. Going after B2B companies focused on the cloud and software solutions may end up being more affordable and potentially much more lucrative for Broadcom, all while allowing the semiconductor juggernaut to avoid new political drama, some industry watchers believe. Insiders claim Mr. Tan sees the modern software industry as highly fragmented and hence extremely suitable for consolidation and cost-cutting efforts that could generate major medium-term returns.
Turning to software also allows Broadcom to diversify beyond chips and make its revenue stream less reliant on single-market fluctuations, though it remains to be seen how many major names in the industry end up being willing to sell their businesses. In the meantime, Broadcom is still pursuing various cost-cutting efforts across its operations and is likely to continue doing so in an aggressive manner moving forward, so long as its growth strategy continues relying on M&A deals instead of research and development. IT management software provider BMC may be one of Broadcom's next targets following the conclusion of the CA Technologies deal, as some industry watchers are already speculating.