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Media reports say that Broadcom (AVGO - Free Report) is acquiring security software maker Symantec for $15 billion. The formal announcement could be made as soon as today or after the July 4th holiday.
Unfazed by President Trump’s move to block its acquisition of Qualcomm (QCOM - Free Report) , the company and its determined CEO Hock Tan proceeded to transfer its headquarters to the U.S., so it could continue on its strategy of acquiring technology companies and squeezing efficiencies from the combinations.
But those aspirations have shifted of late away from the semiconductor space that has been battered by trade tensions with China to infrastructure software (particularly hybrid cloud software), where such tensions don’t exist and where valuations are also more reasonable. That’s what led the company to acquire CA Technologies last year, and if the unconfirmed rumors are right, will lead to its Symantec buy this year.
In a recent note, Morgan Stanley analyst Craig Hettenbach said after conversations with Broadcom CFO Thomas Krause, that Broadcom’s CA acquisition was already yielding a 14% return on investment. So the alteration in strategy is already successful for the company.
Symantec shares jumped over 20% at the news, still well below their 2017 highs, while Broadcom shares dropped off.
Investors are rightly concerned about Symantec, which while continuing to generate strong cash flows, has been growth-strapped. What’s more, the company is currently seeing increased competition at enterprise customers that are turning to cloud-based providers on the one hand, and new-age players offering mobile security on the other.
There have also been a slew of executive departures of late, the highest-profile one being CEO Greg Clark in May. Symantec director Richard Hill is taking over as President and CEO. The recent internal investigation into its book keeping irregularities may have had something to do with the turnover.
But these negatives aside, this may be just the right time to buy the company’s growing intellectual property in cloud security, especially in hybrid cloud environments covering on-premise workloads and those in public and private clouds. Since a large percentage of enterprises looking to transfer their workloads to the cloud are hesitant to go ahead because of security considerations, this is quite an attractive space.
Management said on the last earnings call that Symantec’s cloud offerings have been revitalized, so although enterprise losses will likely continue, the negative impact on revenue will be less in the current quarter, and hopefully continue downward thereafter.
This technology is likely what Broadcom is after, and buying the company when it is down, may just mean that it will be paying a lower price.
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Broadcom Acquiring Symantec
Media reports say that Broadcom (AVGO - Free Report) is acquiring security software maker Symantec for $15 billion. The formal announcement could be made as soon as today or after the July 4th holiday.
Unfazed by President Trump’s move to block its acquisition of Qualcomm (QCOM - Free Report) , the company and its determined CEO Hock Tan proceeded to transfer its headquarters to the U.S., so it could continue on its strategy of acquiring technology companies and squeezing efficiencies from the combinations.
But those aspirations have shifted of late away from the semiconductor space that has been battered by trade tensions with China to infrastructure software (particularly hybrid cloud software), where such tensions don’t exist and where valuations are also more reasonable. That’s what led the company to acquire CA Technologies last year, and if the unconfirmed rumors are right, will lead to its Symantec buy this year.
In a recent note, Morgan Stanley analyst Craig Hettenbach said after conversations with Broadcom CFO Thomas Krause, that Broadcom’s CA acquisition was already yielding a 14% return on investment. So the alteration in strategy is already successful for the company.
Symantec shares jumped over 20% at the news, still well below their 2017 highs, while Broadcom shares dropped off.
Investors are rightly concerned about Symantec, which while continuing to generate strong cash flows, has been growth-strapped. What’s more, the company is currently seeing increased competition at enterprise customers that are turning to cloud-based providers on the one hand, and new-age players offering mobile security on the other.
There have also been a slew of executive departures of late, the highest-profile one being CEO Greg Clark in May. Symantec director Richard Hill is taking over as President and CEO. The recent internal investigation into its book keeping irregularities may have had something to do with the turnover.
But these negatives aside, this may be just the right time to buy the company’s growing intellectual property in cloud security, especially in hybrid cloud environments covering on-premise workloads and those in public and private clouds. Since a large percentage of enterprises looking to transfer their workloads to the cloud are hesitant to go ahead because of security considerations, this is quite an attractive space.
Management said on the last earnings call that Symantec’s cloud offerings have been revitalized, so although enterprise losses will likely continue, the negative impact on revenue will be less in the current quarter, and hopefully continue downward thereafter.
This technology is likely what Broadcom is after, and buying the company when it is down, may just mean that it will be paying a lower price.
Both Symantec and Broadcom shares carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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