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Broadcom Shares Down Following Rumors of Symantec Buyout
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Speculation is rife that Broadcom (AVGO - Free Report) is likely to acquire Symantec Corporation (SYMC), according to a Bloomberg report citing “people familiar with the matter.”
According to rumors, the deal is likely to be worth more than $15 billion and could be completed in few weeks.However, both Broadcomand Symantechave refrained from making any comments the rumored deal. Consequently, the terms of the deal are unknown.
Symantec, a world leader in Internet security technology, provides a broad range of solutions for content security and information back up to individuals and enterprises. Founded in 1982, the company has operations in more than 45 countries. It provides cyber security products, services and solutions to more than 350,000 organizations and 50 million individuals worldwide.
Notably, the deals marks Broadcom’s second biggest attempt to strengthen foothold in the software market, following its $18 billion agreement to acquire CA Technologies last year. Moreover, the rumors surfaced following President Trump’s prohibition of the Qualcomm (QCOM - Free Report) on grounds of national security concerns.
Following the news, Broadcom’s shares were down almost 4.1% in after-hours trade, while that of Symantecwent up approximately 22.28%. Shares of Broadcom were down owing to high debt level which the company will incur if the deal materializes. Moreover, its shares have returned just 16.1% on a year-to-date basis, underperforming the industry’s rally of 22.6%.
Why Symantec is in Talks to get Acquire
Symantec is facing increased competition from bellwethers such as Cisco, Microsoft (MSFT - Free Report) and Intel (INTC - Free Report) . Moreover, the company which was under investigation owing to accounting misconduct has also faced managerial changes after the stepping down of CEO Greg Clark.
Last year in August, Symantec also announced that it would cut 8% of its worldwide workforce to bolster profits.
Symantec also reported a dismal fourth-quarter fiscal 2019 results, where the top line missed the Zacks Consensus Estimate while the bottom line matched the same. Lower-than-expected bookings resulted in a weak quarter for the Enterprise Security segment, consequently dragging the top line.
Moreover, in the last reported quarter, the company faced significant headwinds from the ProxySG and Web Security Service product, and the advanced threat detection protection bundle. The ProxySG business (or the Blue Coat hardware proxy bundle) failed quicker than expected owing to the rapid transition of companies to the cloud. This led to a refresh cycle, which was not as large as expected.
Symantec’s weaker-than-expected outlook for the first quarter and fiscal 2020 makes investors cautious about its near-term performance.
Benefits of the Deal
The aforementioned deal is in sync with Broadcom’s attempts to expand enterprise software capabilities and substantial customer base. On completion, positive synergies from this deal are likely to drive the company’s future growth in cyber security market worldwide.
Cyber-attacks, data losses and compromised networks are constant threats, which in turn make cybersecurity essential for any given country’s national security. With the United States being the most technologically advanced country globally, it remains highly susceptible to cybersecurity attacks. We believe the latest buyout will enable the company to secure more cyber security related contracts from the U.S. administration in the days ahead.
Moreover, the cybersecurity market size is expected to grow from $137.9 billion in 2017 to $231.9 Billion by 2022, at a CAGR of 11% during the forecast period (according to Markets and Markets).
Further, Software is ubiquitous and has become the focal point of technological innovation. Notably, the new development inspires optimism as there is an abundance of software opportunities in the digital cloud era.
These factors will pave the way for Broadcom to diversify end markets and customer base, which bodes well for the long haul. This is anticipated to add resilience to Broadcom’s current business model.
Consequently, the latest deal should allow it to capture larger shares in this expanding market, going ahead.
Our take
Broadcom’s expanding product portfolio positions it well to address the needs of rapidly growing technologies like IoT and 5G. We believe that the company’s extensive product portfolio is a key catalyst.
Furthermore, the company pursues an aggressive acquisition strategy, which in turn fortifies its business model by diversifying end markets.
We remain inquisitive as to how it will integrate Symantec’s software business with the chipmaker’s methodologies. The move is in line with Broadcom’s previous buyouts and it will be interesting to observe its strategy to capitalize on the potential of growing software business.
Zacks Rank
Currently, Broadcom carries a Zacks Rank #3 (Hold).
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Broadcom Shares Down Following Rumors of Symantec Buyout
Speculation is rife that Broadcom (AVGO - Free Report) is likely to acquire Symantec Corporation (SYMC), according to a Bloomberg report citing “people familiar with the matter.”
According to rumors, the deal is likely to be worth more than $15 billion and could be completed in few weeks.However, both Broadcomand Symantechave refrained from making any comments the rumored deal. Consequently, the terms of the deal are unknown.
Symantec, a world leader in Internet security technology, provides a broad range of solutions for content security and information back up to individuals and enterprises. Founded in 1982, the company has operations in more than 45 countries. It provides cyber security products, services and solutions to more than 350,000 organizations and 50 million individuals worldwide.
Notably, the deals marks Broadcom’s second biggest attempt to strengthen foothold in the software market, following its $18 billion agreement to acquire CA Technologies last year. Moreover, the rumors surfaced following President Trump’s prohibition of the Qualcomm (QCOM - Free Report) on grounds of national security concerns.
Following the news, Broadcom’s shares were down almost 4.1% in after-hours trade, while that of Symantecwent up approximately 22.28%. Shares of Broadcom were down owing to high debt level which the company will incur if the deal materializes. Moreover, its shares have returned just 16.1% on a year-to-date basis, underperforming the industry’s rally of 22.6%.
Why Symantec is in Talks to get Acquire
Symantec is facing increased competition from bellwethers such as Cisco, Microsoft (MSFT - Free Report) and Intel (INTC - Free Report) . Moreover, the company which was under investigation owing to accounting misconduct has also faced managerial changes after the stepping down of CEO Greg Clark.
Last year in August, Symantec also announced that it would cut 8% of its worldwide workforce to bolster profits.
Symantec also reported a dismal fourth-quarter fiscal 2019 results, where the top line missed the Zacks Consensus Estimate while the bottom line matched the same. Lower-than-expected bookings resulted in a weak quarter for the Enterprise Security segment, consequently dragging the top line.
Moreover, in the last reported quarter, the company faced significant headwinds from the ProxySG and Web Security Service product, and the advanced threat detection protection bundle. The ProxySG business (or the Blue Coat hardware proxy bundle) failed quicker than expected owing to the rapid transition of companies to the cloud. This led to a refresh cycle, which was not as large as expected.
Symantec’s weaker-than-expected outlook for the first quarter and fiscal 2020 makes investors cautious about its near-term performance.
Benefits of the Deal
The aforementioned deal is in sync with Broadcom’s attempts to expand enterprise software capabilities and substantial customer base. On completion, positive synergies from this deal are likely to drive the company’s future growth in cyber security market worldwide.
Cyber-attacks, data losses and compromised networks are constant threats, which in turn make cybersecurity essential for any given country’s national security. With the United States being the most technologically advanced country globally, it remains highly susceptible to cybersecurity attacks. We believe the latest buyout will enable the company to secure more cyber security related contracts from the U.S. administration in the days ahead.
Moreover, the cybersecurity market size is expected to grow from $137.9 billion in 2017 to $231.9 Billion by 2022, at a CAGR of 11% during the forecast period (according to Markets and Markets).
Further, Software is ubiquitous and has become the focal point of technological innovation. Notably, the new development inspires optimism as there is an abundance of software opportunities in the digital cloud era.
These factors will pave the way for Broadcom to diversify end markets and customer base, which bodes well for the long haul. This is anticipated to add resilience to Broadcom’s current business model.
Consequently, the latest deal should allow it to capture larger shares in this expanding market, going ahead.
Our take
Broadcom’s expanding product portfolio positions it well to address the needs of rapidly growing technologies like IoT and 5G. We believe that the company’s extensive product portfolio is a key catalyst.
Furthermore, the company pursues an aggressive acquisition strategy, which in turn fortifies its business model by diversifying end markets.
We remain inquisitive as to how it will integrate Symantec’s software business with the chipmaker’s methodologies. The move is in line with Broadcom’s previous buyouts and it will be interesting to observe its strategy to capitalize on the potential of growing software business.
Zacks Rank
Currently, Broadcom carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
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