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Avago to Trim Jobs for LSI Purchase

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In a recent SEC filing, leading analog semiconductor manufacturer Avago Technologies Limited (AVGO - Free Report) disclosed its intention to retrench a significant number of employees following the completion of the acquisition of LSI Corporation for $6.6 billion in cash. The gradual workforce reduction will take place over the next six quarters and Avago will record some charges related to the retrenchment in its quarterly results, the amount of which is yet undecided.

Avago acquired LSI to diversify its existing business line from wired infrastructure, wireless and industrial businesses into the storage chip market. The strategic move was aimed at augmenting its revenues, as the industry braces for more consolidation amid a challenging macroeconomic environment.

The all-cash transaction was funded by a combination of $1.0 billion cash in hand, $4.6 billion term loan from a consortium of banks, and $1.0 billion investment from private equity firm Silver Lake Partners.

With annual revenues of approximately $5 billion, the combined company is expected to be one of the behemoths in the semiconductor industry offering a complementary yet diversified product portfolio to a wider range of customers. Leveraging on economies of scale, Avago is expected to benefit from rapid increases in data center IP (Internet protocol) and mobile data traffic, to emerge as the undisputed leader in the enterprise storage market.

In addition to cost synergies from a combined resource pool as the cost of designing and building semiconductors rises, the acquisition is likely to improve the operating margin of the combined company, creating greater scale to further drive innovation into the datacenter.

With expertise in compound semiconductor design and processing, Avago is a premier designer, developer and global supplier of a broad range of analog, mixed signal and optoelectronics components and subsystems. The company boasts over 4,200 patents serving three primary target market segments: wireless communications, wired infrastructure, and industrial and other.

Avago presently has a Zacks Rank #2 (Buy). Other stocks that are worth considering in the industry with a comparable Zacks Rank include Advanced Semiconductor Engineering Inc. (ASX - Free Report) , Alpha & Omega Semiconductor, Ltd. (AOSL - Free Report) and Amkor Technology, Inc. (AMKR - Free Report) .

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