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Is Broadcom (AVGO) Planning to Buy SAS Institute for $20B?

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Broadcom (AVGO - Free Report) is planning to acquire privately held SAS Institute, per a recent report by The Wall Street Journal, cited by Bloomberg. Broadcom could pay any amount between $15 billion and $20 billion for SAS, which offers business analytics and management software.

The deal would expand Broadcom’s footprint in the software space. The semiconductor manufacturer strengthened its presence in the software space with the buyout of CA Technologies and Symantec’s enterprise security business.

CA’s strength in enterprise software offerings and its substantial customer base enabled Broadcom in exploring the infrastructure software market and expanding its total addressable market. Symantec’s enterprise security business expanded its enterprise customer base.
    
In fact, the company is riding on synergies from acquisitions of CA and Symantec’s enterprise security business. Moreover, these acquisitions have lowered Broadcom’s dependence on the semiconductor domain.

In second-quarter fiscal 2021, Infrastructure software revenues increased 4% year over year to $1.79 billion and accounted for 27% of total revenues. For fiscal third quarter, revenues from Infrastructure software segment is expected to be up “at or better than mid-single-digit percentage” on a year-over-year basis.

Broadcom shares have returned 10.9% year to date, compared with the Zacks Electronics-Semiconductors industry’s growth of 7.4%.

 

 

Apart from a robust Infrastructure software segment, Broadcom is benefiting from continued strength in the semiconductor solutions vertical. Robust adoption of Wi-Fi 6 in access gateway and cable DOCSIS 3.1 products bodes well.

Based on its expanding product portfolio, Broadcom is well positioned to address the needs of rapidly growing technologies like IoT and 5G. Acceleration in 5G deployment, production ramp up and increase in radio frequency content favor prospects.

Markedly, semiconductor solutions’ revenues totaled $4.82 billion, up 20% year over year and accounted for 73% of second-quarter fiscal 2021 revenues.

Further, an upbeat guidance for the third quarter of fiscal 2021 on strong uptick in broadband, networking and wireless revenues is encouraging. In the fiscal third quarter, Broadcom projects semiconductor solutions business to register year-over-year growth similar to the fiscal second quarter.

Moreover, Broadcom expects wireless revenues to increase more than 30% on a year-over-year basis. In broadband end-market, management expects to sustain double-digit year-over-year growth in revenues in fiscal third quarter. In the networking domain, the company expects revenues to increase in low double digits year-over-year basis.

Broadcom currently anticipates fiscal third-quarter revenues to be $6.75 billion. Adjusted EBITDA is expected to be approximately 60% of projected revenues.

The Zacks Consensus Estimate for revenues is pegged at $6.76 billion, indicating 16.1% growth from the year-ago quarter.

 

Zacks Rank & Other Stocks to Consider

Currently, Broadcom has a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader Computer and Technology sector are Digital Turbine (APPS - Free Report) , ServiceNow (NOW - Free Report) and Zoom (ZM - Free Report) . All three stocks flaunt a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Digital Turbine, ServiceNow and Zoom is currently pegged at 50%, 27.8% and 15.6%, respectively.