>As of 2014, Broadcom had $3.13 billion of cash and cash equivalents held by its foreign subsidiaries, and it deferred about $4.85 billion in tax on un-repatriated foreign earnings, according to SEC filings. Selling to a Singapore-based firm will free the foreign cash and help eliminate potential U.S. tax liabilities.
F. You. The deal is predicated on avoiding paying US taxes. "I know we built our business on the luxury of a developed western nation that provided ample education for our founders, but we'd like to avoid actually paying for that luxury now, because we no longer benefit from it." I hope the USJD bends them over a barrel on the taxation before this is allowed to close. But who am I kidding, green light baby! Let it burn!
Tax evasion is lying in order to reduce your tax burden. Tax avoidance is following the letter but not spirit of tax laws. The lawyers behind those schemes claim they're legal, but it's important to remember that tax authorities often close schemes and claw back the avoided tax. UK tax authorities tend to avoid going to court if possible so a lot of tax avoidance actually probably is illegal, it just hasn't been tested in the courts.
It's not just legal, it is a fiduciary responsibility of the management of a publicly traded company to minimize its tax burden. To not do so is negligent.
If they feel that they can maximize shareholder value by headquartering in a high tax location then they do so. Part of that may include fostering an image of social responsibility and vision.
On the other hand, if they feel that the company should pay more taxes than required just because, then instead of negligently continuing to operate in an unfavorable tax environment they should bring it before the shareholders and if they support it set up a foundation or charity to do so. Make it explicit that they are paying more than required to the US government because 'merica.
Just from my own experience, when LSI was bought up by Avago, a lot of the LSI guys around here complained that it was a rather rough transition. Avago seems to like buying up companies like this and piecing them out, like how a lot of LSI's storage controller related assets were sliced off and sold to Seagate after being acquired by Avago; I'm not sure if this is a good thing for Broadcom.
From the reviews in Glassdoor, it looks like the employees are not treated well in Avago and Avago's CEO has a very low approval rating. So this not a good thing for employees of Broadcom also.
Companies tend to accumulate multiple product lines. It seems Avago's strategy is to buy companies with high growth products, then sell off the less high growth product lines to others (which probably helps finance the acquisition to some extent).
Put another way, he's exploiting management's tendency to not focus on high growth products, by not selling off the profitable, but slower growing products themselves.
The result of this is that the high growth is diluted over a broader base revenue made up of slower growth companies... which lowers the companies value to investors (PEG is a common measure of the value of a company, which is combination of price, earnings and growth, so growth increases the multiple.)
If there were no friction this would be good, because the slower growing products will be merged with other companies who probably have the same product line, and then they can be combined to produce another generation that has the best of both previous companies products.
Alas, there is always friction in human things and thus this strategy has risk for all involved,
They also slashed a bunch of redundant divisions, I am told. I forget which teams, but for example "We already have a library team, we don't need another one, but we could really use this serdes group..."
The good news is they're not stuck with a single vendor, they could theoretically go to any company with an ARM license and get a compatible chip. If they were feeling ambitious they could even get their own chip made by someone like TSMC or Samsung.
The GPIOs, GPU, booting process, etc. is all specific to it, and I guess manufacturing a compatible processor would need complicated if not almost impossible reverse engineering and might violate Broadcom's copyright or some contracts.
And a lot of commercial products, programs and libraries depend on the Raspberry Pi, so they have to be able to continue making compatible products.
I wonder how much IP in the BCM2835 and BCM2836 SoC actually belongs to Broadcom vs 3rd parties?
My understanding is that the BCM2835/BCM2836 production run was dedicated to RasPi, although originally designed for OEM cellphone manufactures.
The figure I heard was that an outsourced SoC costs around $10-20m in licensing and NRE. That is basically go to a company that already has produced SoCs (eg. Samsung) and write a check. Considering that RasPi has sold over 5m units, getting another custom Soc made is not out of reach.
Can you be more specific? All I'm finding is they made the ODROID-W using a specific Broadcom SoC, and Broadcom refused to supply them with it, so Hardkernel had to stop making the ODROID-W after their first production run.
That seems to say that theres not a technical issue with making an rpi-compatible SBC but a political one.
I'm a bit more optimistic about Avago releasing more info on their SoCs.
It's not quite the same thing, but I've obtained datasheets for their optical mouse sensors rather easily - possibly because of their Agilent/HP heritage.
Trying to get anything from Broadcom is worse than "pulling teeth from a chook" - I've had better success with small Chinese companies like AllWinner.
TIL (I think?): Avago is the spun-off semiconductor division of Agilent, plus LSI and Emulex (minus, it seems, all the parts of those businesses that don't produce chipset products).
I think? this makes Avago the largest chipset vendor.
TIL too. My response was: "what the heck is an Avago and how is it big enough to buy Broadcom?!"
I don't really get the trend of taking well-established brands and changing their name to something nobody recognizes. This gets me all the time with Leidos too (i.e. SAIC).
Well, to be fair, that's not really what happened. HP spun off Agilent to focus on end-user general IT products. Agilent was a giant hairball of a company. PE firms stripped the chipset and component divisions out of the hairball, called them "Avago", refined the business down to chipsets and away from general components, and executed a roll-up strategy on the chipset space.
What would make sense would be for Avago to do a VW/Audi or Cingular/ATT thing and assume Broadcom's branding.
I'm not sure that the "Agilent" branding does a whole lot more for a chipset business than "Avago" does.
Also: I'm guessing if you're an Avago customer, you know it. :)
Similarly: Leidos isn't really SAIC, but rather the spun-off "national security" IT products part of SAIC.
It would be interesting to try and make a graph of the product lines / companies in this space. I.e. HP started off doing test equipment, and back in the 90s spun that division and everything not related to computers/storage/printers to Agilent. Agilent has since spun off:
* Phillips Medical Systems: health care
* Avago: Semiconductors
* Verigy: Semiconductor test
* Keysight: Test equipment
+ Probably more I don't know about due to acquisitions.
The graph would be even more complex if you trace all the part acquisitions and divestitures in and out of Avago (LSI, PLX, Infineon, Axxia, SSD tech to Seagate, Emulex).
Then again, Broadcom liked to buy things, for example ServerWorks, Renesas, Netlogic (which in turn had acquired RMI, etc).
So what I've also learned is that I never needed to understand WTF "Avago" was. It's like something stuck in the middle of the evaluation stack of an expression parser.
...or when one 'Tera Computer Company' bought what was left of Cray from SGI, renamed itself Cray Inc., and released reworked versions of existing products under the Cray name.
Avago paid for it with about 50% stock 25% cash and 25% new debt, so no Avago does not actually have enough money to straight up buy Broadcom. It is more like a merger than an acquisition.
They don't actually sell all that many things under the Avago brand, which may be why you haven't heard of them. They sell optocouplers, optical mouse sensors and some other optoelectronics, some RF stuff, and that's about it. I had heard of them before, and my reaction was basically "wait, Avago as in the optoelectronics company that spun out of HP?"
There's that, and also the fact that Xfinity is a triple-play brand, and people have a very strong association between "Comcast" and "Pay TV", which makes it more difficult for that brand to also sell telecom service.
I am not sure that I understand what you mean with chipset vendor? In my view both Intel and Qualcomm are chipset vendors as well a "solution" consisting of multiple chips. Usually this is indicated in their reference platforms. For Intel that would be the CPU and the motherboard and for Qualcomm that would be their handset reference platform.
Aside from that, the new company will be really big even after divisions have been sold off.
One thing I'd love to see one day would be a timeline/lineage graph of (silicon valley) tech companies. It is pretty colorful how the companies have variously both spun off and merged while still maintaining relatively strong history that usually can be traced to few key places (e.g. Fairchild)
Given past experience with both Avago and Broadcom, I don't think I would hold your hopes too high; I would bet money that the current attitude you get from Broadcom about drivers will continue if not get worse. Most vendors in the hardware sphere tend to be rather protective of everything they do (fairly or unfairly), and pretty old school,and that sort of attitude doesn't really play well with our open source/libre desires for more transparency in things like drives.
The reason for the deal: as the WSJ noted yesterday, "growth has been hard to come by for Broadcom, a 24-year-old company that makes communications chips for tablets and smartphones, and supplies the Internet links for cable-television and telecommunications devices."
As to why Avago is likewise excited to close the deal, "Avago has been likened to health-care companies such as Valeant Pharmaceuticals International Inc. that are based in foreign tax jurisdictions and also have become voracious acquirers."
So Broadcom is merely the latest "notch on the bedpost", funded with billions in new debt.
The press release also mentions $750 million "synergies" in the next 18 months which should translate to about 2000-3000 layoffs.
They don't have to lay ANYONE off. That's the beauty. They just conveniently avoid paying any US taxes on a "shitload" (technical term) of income, because they aren't a US company - and Broadcom has avoided repatriating income for precisely this reason.
They note the mobile chips - but those are sold cheap.
More importantly is the fact that Broadcom's switch chips have pretty much become the de-facto chipsets used in data center switches from most vendors. They are quickly becoming the Intel of DC switches. And these chips, are not so cheap (though true, there are fewer of them, but the margins are much more attractive).
The number of large semiconductor acquisitions in the past year has been pretty insane... just further consolidation with very few new semi startups coming out.
You should expect this trend to continue. Semiconductors have become a hideously expensive business, aggravated by fewer fabs and more draconian fab/IP acquisition costs. It's a well known that nobody on Sand Hill road will touch semiconductor startups at all, leading to a stagnant collection of semiconductor companies founded 20+ years ago. There was recently announced a semi-only incubator here in SV[1] because nobody can raise any traditional VC money, although time will tell how many successful exits it will have.
> although time will tell how many successful exits it will have.
And that's exactly the problem. Semiconductors has no exit.
Atheros was probably the last company to go from startup to big hit, and look how long it took them to exit.
Why will a VC throw money at a company that has a 5 year exit, at best, when they can throw a lot less at stupid 20-somethings, flog them like slaves, and sell to Yahooglezonsoft.
There are quite a few people interested in semiconductors on Sand Hill Road (have talked with many of them), but you are right that they are very cautious. Thankfully, you should be hearing about a well known VC funding a semiconductor startup in the near future.
Silicon Catalyst is great, and I look forward to silicon coming back to Silicon Valley.
This is such a shame. I think,well I want to believe there os still a lot of things that can be done in that space, both in ip only dev and processing tech. It would be so nice to see a startup doing startupy thing in that space, either ip core, chemical processing or similar.
It's far easier to build a start-up doing software than pretty much any hardware, so current giants have a huge advantage over anyone trying to break in. Consider for a moment that a new fab with a recent process is probably a many billion dollar investment, and that even fabless semiconductor companies (a la LSI, recently) there are huge amounts of IP, capital, and brain power tied up; everything also really needs to be really correct up front, and tooling is expensive (you wouldn't want to waste millions of dollars building a chip that's really unproven and undesired from a market perspective). Even technologies with less expensive (though not at all cheap) tooling, like hard disk drives, the IP is so tied up with the current giants (WD/HGST/Seagate), and the firmware needed to make the drives work at current capacities is so complex, that it is essentially impossible to break into the market.
As someone starting a fabless semiconductor startup on less than $2 million, I completely agree with you when it comes to starting a fab (Intel's, GF's, and TSMC's new 14-16nm fabs are in the $10 to $15 billion range), but a fabless semiconductor company can be done for the same range as a software startup. While it is not fair to use my startup as an example (as we don't have silicon in hand just yet), you can look here:
It could be that the adapteva model(which talks about a highly focused design) fits a small number of start-ups, that are as a generalization, less appealing to VC's due to smaller markets and returns, and most other companies require lots of funding - say $30+ million ?
That's the popular legend. But in reality one guy was a professor at UCLA and the other a well paid engineer at TRW. To get started with early development of much of their IP they used considerable resources available to them at their employers, which included funding from government IR&D projects and chip design engineers who were on TRW's payroll.
The only notable recent entrant I can think of is Spreadtrum from China. But I don't know that it counts as a startup when it is backed and partially owned by the Chinese government.
First Motorola, Freescale, now Broadcom, who will be the next?
Marvell? or AMD? The latter is really cheap though.
World is changing so fast these days. Will USA be left with companies like Facebook/Twitter and we will all end up doing social-activities using devices invented/made elsewhere and feel great about them?
Well, that is interesting. I wonder how much R&D will continue and in particular what happens to Gottfried Ungerboeck (inventor of trellis modulation). This will be interesting to watch.
At Broadcom? I'd echo that, the late 1990s and early 2000s were definitely when they were undergoing radical growth. They tended to pay lower wages but everyone was okay with it because they were making tons on the stock. I never worked for them but worked closely with them. They had an intensity about them...
It seems like they've lost a bit of their mojo, everyone, it seems, builds custom ARM chips now... Back in those days they could pretty easily target a vertical, graft a few chips together and sell a specialized solution that was pretty compelling.
I wonder if the US government will be okay with such a large chipmaker to be owned by a Singapore company. Historically, they haven't been too keen on exporting chip tech.
If Qualcomm is on the table, it seems more likely to be approved.
I agree that some Congress members might want to be annoyed by this, but nothing will come of it. It's not a tax inversion in legal terms at all, it's a straight acquisition (there are important distinctions there). Avago was smart to pay a lot of cash as well, to push Broadcom shareholder's ownership position down to about 1/3 (keeping it far away from the tax inversion lines).
Here's why:
"Thursday’s deal isn’t impacted by the Treasury [inversion] guidelines, says Willens, because Broadcom shareholders will own less than 60% of the stock of the acquiring corporation. It’s also not by definition an inversion since Avago is the acquirer, but the result the same. “Here all of the “normal” benefits of an inversion should be freely available,” Willens concludes."
IANAAnalyst, but the company with probably the most components in devices in the entire world is being sold for about 1.6x what WhatsApp went for? Crazy times.
just started dealing with avago a few weeks ago, before that had never heard of them. seems like they do a lot of buy and splits to get the really profitable/strategic pieces and sell of the remainders
>As of 2014, Broadcom had $3.13 billion of cash and cash equivalents held by its foreign subsidiaries, and it deferred about $4.85 billion in tax on un-repatriated foreign earnings, according to SEC filings. Selling to a Singapore-based firm will free the foreign cash and help eliminate potential U.S. tax liabilities.
F. You. The deal is predicated on avoiding paying US taxes. "I know we built our business on the luxury of a developed western nation that provided ample education for our founders, but we'd like to avoid actually paying for that luxury now, because we no longer benefit from it." I hope the USJD bends them over a barrel on the taxation before this is allowed to close. But who am I kidding, green light baby! Let it burn!