World Backup Day Deals Best Cloud Storage Options Apple AR/VR Headset Uncertainty Samsung Galaxy A54 Preorders iOS 16.4: What's New 10 Best Foods for PCOS 25 Easter Basket Ideas COVID Reinfection: What to Know
Want CNET to notify you of price drops and the latest stories?
No, thank you

Broadcom snags fiber-optics chipmaker

The maker of integrated circuits for broadband communications devices agrees to buy privately held fiber-optic chipmaker NewPort Communications for about $1.24 billion.

Broadcom, a maker of integrated circuits for broadband communications devices, will buy privately held fiber-optic chipmaker NewPort Communications for about $1.24 billion.

Broadcom said it will issue 5.5 million shares of its Class A common stock in exchange for outstanding NewPort shares and employee options. Both companies are based in Irvine, Calif.

Today's acquisition is the latest in a series by Broadcom. Earlier this month, the company picked up semiconductor developer Silicon Spice and in July bought Altima Communications, a network supplier for small- and medium-sized businesses.

In May, Broadcom announced its first chip for optical networking and said it was setting up a new business unit to focus on optical chips.

Cisco Systems, Lucent Technologies and Sumitomo are customers of and investors in NewPort.

Broadcom chief executive Henry Nicholas said the technology Broadcom is acquiring from NewPort will complement the technology picked up from Silicon Spice. "Together these acquisitions will provide Broadcom with a powerful platform to address the rapidly growing wide area networking (WAN) marketplace."

In an interview, Nicholas said the NewPort acquisition will allow Broadcom to compete more seriously for chips that power the optical networks used by large communications carriers as well as so-called metropolitan area networks, new fiber networks being built in many big cities.

Such a move puts Broadcom in direct competition with chipmakers PMC-Sierra, Applied Micro Circuits and Vitesse Semiconductor.

The string of acquisitions comes during a period of strong growth. For the second quarter, Broadcom's revenue increased 105 percent year-over-year to $245.2 million, up from $119.5 million. The stock price has nearly tripled in a year.

Following the Silicon Spice merger announcement, many financial analysts reiterated, but did not upgrade, their recommendations for Broadcom. Credit Suisse First Boston analyst Charles Glavin, John Geraghty at Gerard Klauer Mattison, and Paine Webber's David Wong all reiterated their "buy" ratings last week.

Broadcom expects to close the deal within 60 days, subject to regulatory approval, and plans to take a one-time write-off during its fiscal third quarter.

Fitting the profile
Nicholas said NewPort fits the profile of a company that he looks for when making an acquisition--it addresses a big and growing market and is just starting to gain design wins.

NewPort is in production on its first chip and sampling a second chip, and Nicholas said the company is going after a segment of the optical market that is projected to total $1.3 billion next year.

Nicholas said he has had his eye on the company and its leaders for several years, but said at the time, Broadcom was focused on becoming the leader in office networking chips as well as cable modems and set-top boxes.

"Now the time has come for us to branch out," Nicholas said. "Our objective is to control end-to-end data internetworking."

Although Broadcom has tended to acquire companies at the same stage, the price tag has gone up over time, with its last two acquisitions valued at nearly twice its biggest prior acquisitions. Nicholas said he is not worried by the growing cost of buying chipmakers.

"We're not actually concerned with the price tag at all," Nicholas said. "What we look at is the return to shareholders. The more valuable the company, the more we like the acquisition."

Nicholas said because of the breadth of Broadcom's ambitions, acquired companies can grow faster than anywhere else, and thus are worth more. Such is the case with NewPort, Nicholas said.

"They will experience a much more significant revenue ramp as a part of Broadcom than as a part of our competitors."