Broadcom just threw the entire Wall Street into surprise as it announced that it had purchased the low-growth software company CA technologies for $18.9 billion. Not many could understand the rationale behind this move and analysts questioned this decision widely, terming it as bizarre, defocused and non-strategic. Unsurprisingly, Broadcom’s shares went down 19 percent, decreased its market cap by approximately $18.9 billion after the purchase and saw a drop of $14.5 billion in stock value.
According to CNBC, analyst Chris Caso failed to see any possible business synergies between Broadcom and CA Technologies, one of which is a semiconductor business while the latter is a software business. “To say the deal came out of left field is an understatement. We see no obvious business synergies between Broadcom’s semiconductor business and CA’s Software business,” he said. “This deal, since it is so far afield from Broadcom’s core businesses, will likely cause significant confusion about the company’s strategy.” Analysts at Mizhuo Securities are not very impressed by this decision and predict that it will hurt the company’s credibility and standing with investors overall. Moreover, it is predicted that the company will not be able to gain success in the software business. Even Intel could not achieve that.
Broadcom has been acquiring several firms with a higher integration value under the leadership of CEO Hock Tan. His aim is said to take previously industry-leading organizations and cutting down cost structures for gaining profit. Through this move, the company plans to integrate software into its combined product portfolio and make an entrance to the server market. If this deal with CA technology closes, Broadcom’s revenue is expected to diversify with 71 percent arriving from chips and 28 percent from software.