Are Toshiba's Chips In The Bag for Broadcom?
Over the last 10 - 15 years the semiconductor industry has consolidated itself leaving some much larger players participating in the game. One of the mid-sized players was Avago with a market cap in the order of $10B. but that was before the company went on a buying and merging frenzy and swallowed up Boardcom in the process. The company was renames Broadcom with ticker AVGO, and now has an $80+ billion market cap.
Many non-investors believe that market cap is an imaginative thing, but for Broadcom it's very real. A larger market cap means more access to capital and more liquidity. This has allowed Broadcom to issue a bid for Toshiba's semiconductor chip unit for $23B according to reports. This would not have been possible for Broadcom just a few years ago. Its competitors Skyworks and Qorvo for example, are far too small to even make a bid for Toshiba's valuable chips given their smaller $17B and $8B market caps respectively.
According to sources Broadcom has partnered with an equity firm, Silver Lake, to make its offer, while even outbidding Foxconn in an attempt to get its hand on Toshiba's memory chips.
Becoming a diversified chip manufacturing company is very important these days, especially for companies reliant on just one or two customers for the bulk of their income. Take Dialog Semiconductor for example whose stock fell 15% this week when Apple said it was going to cut back on their power management chips. The week before, Imagination Technologies saw a 60% haircut when Apple decided to bring its graphics chips in-house.
The large, diversified players seem to be in the sweet spot right now, as they can grow with large acquisitions and turn themselves into one-stop shop component makers. On the other hand, the smaller players can be easily replaced or phased out. Going forward they will need to merge and consolidate in order to survive.