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Cypress Assumes IoT Leadership with Broadcom Asset Buyout

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Cypress Semiconductor Corp. announced that it has acquired some of the assets of Broadcom Limited (AVGO - Free Report) in an all-cash transaction of $550 million. The deal was announced in April this year.

As per the terms of the deal, Cypress will assume the Wireless Internet of Things (IoT) business and related assets of Broadcom.

Broadcom will retain the Bluetooth and WiFi businesses meant for phones and set-top boxes. Note that Apple Inc. (AAPL - Free Report) is a major client of Broadcom and uses its Bluetooth-WiFi combo chips in iPhones as well as watches.

About IoT

The “Internet of Things” is a concept seeking to connect devices used for everyday living to the Internet, so they can share and exchange data and thereby operate more intelligently. It may also enable devices to communicate with each other where required (such as in connected homes).

Since it is still in a nascent stage, it is currently dominated by innovative startups. Larger companies like Intel (INTC) and Alphabet’s (GOOGL) Google are attempting to provide building blocks. But since the value of the technology might in some cases be a significant percentage of the device cost itself, some of these big companies will become device providers in the IoT world.

Although many companies have come up with their versions of interconnected devices comprising doorbells, thermostats and light bulbs, none has emerged to assume the role of an industry leader at this point.

Advantage Cypress

IoT Leadership: The $550 million acquisition makes Cypress the only company in the space to have cutting-edge wireless radios, MCUs, memories and power management ICs for integrated IoT systems in its repertoire.

This would make it a key player in the automotive and industrial IoT segments.

Wireless Prowess: The acquisition will help Cypress to gain wireless technology prowess and integrate some of its existing devices such as microcontrollers, memory and programmable systems on chips with wireless technology.

WICED: The WICED software development kit has been designed keeping hardware manufacturers in mind. This enables them to quickly install WiFi and Bluetooth in their devices.

Connected Cars: The acquisition would now support simultaneous use of multiple displays as well as media sharing. Additionally, Broadcom’s radios are compatible with Cypress’s Traveo automotive MCUs that facilitate the firmware to send real-time over-the-air updates, eventually reducing implementation costs. It is an ingenious way to keep the car in great shape.

Consumer IoT: This is a high growth segment that includes products such as wearable electronics and home automation solutions. Cypress will now become a key player in this segment as well.

The main objective of the company would now be to implement WiFi and Bluetooth technologies in as many devices as possible in a bid to connect them with one another.

Our Take

We note that given the ever increasing number of connected products making their way into our everyday lives, IoT is poised to grow strongly. This acquisition brings Cypress some key capabilities to cater to this huge opportunity.

At present Cypress has a Zacks Rank #3 (Hold).

Stock to Consider

A better-ranked stock in the broader technology space is DSP Group Inc. , sporting a Zacks Rank #1 (Strong Buy).

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