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Broadcom, HCL Sign Preferred Services Deal Post CA Buyout

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Broadcom (AVGO - Free Report) recently inked a preferred services partnership pact with Noida, India-headquartered HCL Technologies. Per the terms of the pact, HCL will offer professional and technical services to Broadcom’s enterprise software customers.

The partnership will enable Broadcom’s customers to have full access to HCL’s technological expertise across consulting, implementation, upgradation and support services.

The company also informs that, “In addition, the majority of Broadcom’s professional services personnel with expertise including Agile, CyberSecurity, and DevOps will transition to HCL.”

Notably, Broadcom’s enterprise software products were formerly part of CA Technologies. Broadcom concluded CA buyout on Nov 5, 2018, as scheduled. Prior to acquisition, CA Technologies operated primarily in two business segments — mainframe and infrastructure software.

Broadcom attempts to enhance infrastructure technology with this partnership, keeping its “Mainframe and US Public Sector professional services group” outside the terms of the deal.

Notably, shares of Broadcom have returned 10.1% in the past three months, against the industry’s decline of 3.3%.

Key Takeaways

The partnership is in sync with Broadcom’s attempts to expand mission critical technology solutions portfolio on the heels of CA’s enterprise software offerings. The partnership is expected to make the integration process of CA’s software business simpler.

Further, enterprises are focusing on rapid migration to cloud and DevOps technologies to achieve scalability and agility for software development as well as other IT operations. These factors are anticipated to aid Broadcom in offering clients with robust digital experience with the HCL partnership.

The increasing demand of IT management software solutions, persuaded Broadcom to pick CA. CA’s substantial customer base is anticipated to enable Broadcom explore the infrastructure software market and expand its TAM.

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 its end markets and customer base, which bodes well for the long haul. This is anticipated to add resilience to Broadcom’s current business model.

Risks Remain

Broadcom faces intensifying competition and integration risks owing to frequent acquisitions. The company’s leveraged balance sheet and customer concentration remain headwinds.

Zacks Rank & Key Picks

Broadcom carries a Zacks Rank #4 (Sell).

Twitter, Inc. (TWTR - Free Report) , Upland Software (UPLD - Free Report) and Intel (INTC - Free Report) are a few stocks worth considering in the broader technology sector. All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Twitter, Upland Software and Intel is currently pegged at 22.1%, 22% and 8.4%, respectively.

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