On Wednesday, Bloomberg reported that semiconductor giant Broadcom is interested in purchasing cybersecurity company Symantec. Insiders told the publication that talks between the firms have advanced to the point where an acquisition announcement might happen within weeks. The chipmaker reportedly wants to buy the company to shore up its profitability.
Though neither firm has publicly commented on a potential acquisition deal, the New York Times has confirmed Bloomberg’s story. Moreover, The Times noted Broadcom would look to buy Symantec for at least $15 billion.
Benefits of Expanded Offerings
While it might seem odd for a corporation that specializes in making computer chips to broaden its software segment suddenly, Broadcom has been looking to expand its offerings for a while now. In July 2018, the firm purchased CA Technologies for $18 billion. At the time, analysts questioned the move, given that the entire semiconductor sector is contracting.
However, Broadcom’s software acquisition has performed well under new management. In Q2 2019, the company reported that segment of its business grew by 216 percent year-to-year.
Like the rest of the components industry, Broadcom’s core business is uncertain due to the ongoing U.S.-China trade war. Last month, the corporation revised its 2019 financial outlook down by $2 billion because of the conflict. As such, the firm would do well to diversify its portfolio.
Additionally, the chip maker has a significant incentive to create new streams of revenue quickly. Earlier this week, The Burn-In reported the European Union launched an antitrust investigation into Broadcom’s business practices. Furthermore, U.S. regulators have been looking into claims that the company has abused its market position to suppress competition since last January.
If Broadcom loses two expensive anti-competition cases, it will benefit from owning a profit-generating segment that’s not under government scrutiny.
Should Broadcom Buy Symantec?
Though Broadcom would undeniably benefit from diversifying its holdings, buying Symantec may not be a great idea. After the Bloomberg story went live, the antiviral software company’s stock rose by an impressive 16 percent. However, Wall Street was not as kind to the semiconductor manufacturer; post announcement, its stock slipped by 3.5 percent.
The market probably reacted poorly to Broadcom’s interest in buying the utility because Symantec hasn’t been doing well recently. Last year, the company lost 30 percent of its market value after it announced it would be conducting an accounting audit. After the inquiry concluded, the corporation mysteriously revised its most recent earnings report down by $12 million. Additionally, the cybersecurity firm’s stock fell by 16 percent after CEO Greg Clark abruptly left the company in May.
Still, despite its recent issues, Symantec is one of the world’s biggest antivirus companies. Bloomberg stated that more than 350,000 organizations and 50 million individuals sill use its products.
Piper Jaffray analyst Harsh Kumar said Broadcom’s purchase of the utility is a good idea if the company repeats the success it found in acquiring CA Technologies. Conversely, technology analyst Anand Srinivasan said Broadcom CEO Hock Tan would need to “aggressively” reduce Symantec’s costs while maintaining its current sales metrics to make the deal worthwhile.