Agreement to Buy CA Technologies for $18.9 Billion
In a move that took the financial and technology world by surprise, Broadcom agreed to purchase CA Technologies for $18.9 billion on July 11th. This acquisition moves Broadcom in a dramatically different direction as it acquires a company focused on software for mainframe and enterprise applications. Broadcom has risen dramatically as a major player in the semiconductor world with the aggressive acquisition strategies pursued by its CEO, Hock Tan, who took over the company in 2006. Following a previous series of highly successful acquisition, Broadcom hit a wall when the U.S. stepped in to block its acquisition of Qualcomm due to strategic geopolitical and technology concerns. This latest move into the software world has analysts scratching their collective heads trying to understand the motivation and strategy behind this major move.
What is Broadcom Thinking?
At first glance, the CA Technologies acquisition by Broadcom is difficult to understand given the typical strategies pursued by semiconductor companies in their acquisition activities. Usually, these M&A engagements are attractive due to the opportunity to save costs (improve profitability) in areas such as operations, distribution, etc. or the chance to establish a strong position in a key market or the chance to acquire technology/patents in a timely way, etc. But why an enterprise and mainframe software company? To begin to understand this move it is important to step back to see the big picture of market & technology trends while also stepping down to look more closely at CA Technologies’ product and services portfolio.
The forces shaping the world of technology are revolving around areas such as IoT, Cloud, 5G communications, big data and data analytics, etc. The products and services that will drive future growth opportunities in the technology world will not come from a single product type as it has in the past with consumer electronics, computers/PCs or smartphones. Future market opportunities will come in the form of complete ecosystems and connected environments where value is delivered through the convergence of sensing, computing, communications, analytics, etc. While semiconductors provide the enabling foundation for the individual elements of this new world of technology the force that brings life to these ecosystems is software. Software is fundamental in every aspect of the value created by new products and services ranging from embedded software in specific components and products to high-level systems management and analytics. Woven through all of this is the critical need for strong security to protect the new value that is being created.
With the acquisition of CA Technologies, Broadcom has taken a major step forward in establishing an ability to provide a comprehensive system level solution for major commercial and industrial markets that will tie together the hardware and software worlds in a package that is designed for simplicity and security.
Looking One Level Lower at CA Technologies
Examining the specific product portfolio of CA Technologies reveals the central role they have and will continue to play in critical areas such as: Advanced Analytics, API Management, Automation, Cloud Solutions, Agile Management, Security, etc. The ability for a chip company to create a portfolio solution in this area would have been similar to Intel combining with Microsoft in the early days of the PC market. On their own, each player was powerful and played leading roles in the world of computing. If they had joined together it is hard to imagine how much more powerful they might have become. While not a perfect comparison, the combination of Broadcom and CA Technologies will achieve similar advantages.