Broadcom Acquires NetLogic

Broadcom Corp. (BRCM - Analyst Report) recently announced that it has completed the acquisition of NetLogic Microsystems, Inc. (NETL) at $3.7 billion, as decided on September 12, 2011.

NetLogic is a global fabless semi-conductor company, selling networking processors and integrated circuits. Its solutions are primarily used as high-performance systems in switches, routers, wireless base stations, security appliances and other various connected media components produced by original equipment manufacturers (OEMs).

The acquisition was done with the primary intent of ameliorating Broadcom’s infrastructure and networking business platform, thereby making them more cost and time efficient. NetLogic shall also bring forth new advancements such as its multi-core embedded processor and knowledge-based processor solutions.

Broadcom’s management expressed its alacrity on the venture by averring the acquisition to be a trademark milestone for the future of the company. We consider the acquisition to be quite a momentous one, keeping in mind the current trends of cloud computing and mobile and video traffic prevalent in the economy along with the existing dominance of Broadcom’s Networking and Infrastructure segment in the market.

The company recently reported the financial results of its fourth quarter of 2011, whereby there was a 13% drop in the Infrastructure and Networking businesses, mainly due to the softness in demand arising from the Ethernet switches and physical layer transceiver (PHY) solutions. We can perspicaciously say that the present acquisition will elevate this segment considerably in the financial results of Broadcom’s first quarter of fiscal 2012.

We maintain our Neutral recommendation on the stock. Our recommendation is supported by Zacks #3 Rank, which translates into a short-term rating of Hold.

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