Broadcom to buy chip maker NetLogic for $3.7 billion

Broadcom Corp. is buying chip maker NetLogic Microsystems Inc. in a deal that would make the Irvine company a behemoth in the growing business of making online connections faster for mobile devices.

Broadcom, already a key manufacturer of chips that go into cellphones and tablet computers, said the $3.7-billion acquisition of Santa Clara, Calif.-based NetLogic would double its market share in building parts for high-speed mobile networks. Those networks are expected to play a crucial role as more people use smartphones and tablets that require a huge flow of data.

The acquisition, Broadcom’s largest yet, is part of a buying spree that has helped the company grow amid legal troubles and scandals that have dogged the company in recent years. It has acquired 43 firms in the last decade, growing from $1.1 billion to $6.8 billion in annual revenue.

The latest deal would solidify Broadcom’s move into the high-speed data-processing market, estimated at $4 billion annually and likely to grow rapidly, said Richard Schafer, an analyst at Oppenheimer & Co.

So far only about 10% to 15% of mobile networks have been upgraded for higher-speed connections, he said. “We are in the first or second inning.”

NetLogic is appealing to Broadcom because it makes advanced chips that go inside high-speed — often called 3G and 4G — cellphone data networks.

These processing chips, which can handle massive amounts of data, are becoming increasingly important as mobile networks get upgraded to be faster and more nimble at directing traffic and more people use smartphones and tablet computers.

Scott McGregor, Broadcom’s chief executive, said the company has been looking for a way to move into the business of making these sophisticated chips for some time. Network processing is an attractive area of growth, he said.

“NetLogic has some really great technology that is a great strategic fit with Broadcom,” McGregor said.

He noted that the acquisition would add some 700 patents to Broadcom’s extensive portfolio. Owning patents has become a major battleground among tech companies as more and more phones and tablets share similar features and components.

Acquiring NetLogic “fills a product hole for them,” Schafer said about Broadcom. “When they consider whether to build the technology versus buying it, this was the fastest way to fill the hole. They become the top player in a fast-growth market virtually overnight.”

Broadcom said it would pay $50 a share for NetLogic — a 57% premium over the company’s closing stock price Friday of $31.91.

Broadcom shares fell 38 cents, or 1.1%, to $33.06 on Monday, while NetLogic shot up 50.8% to close at $48.12.

The NetLogic acquisition would complement Broadcom’s existing business of making chips for parts of the Internet backbone that process mobile communications, said Cody Acree, research director at financial services firm Williams Financial Group.

Although Broadcom specializes in making parts such as switchers and controllers that regulate the flow of traffic, NetLogic makes the core processing chips that investigate and process packets of data — which ultimately play a huge hand in determining Internet speed.

“It’s a very synergistic move,” Acree said. “The companies don’t have any overlaps and sell into the same customers and same equipment, but with very different technologies.”

McGregor said that Broadcom would look into simplifying mobile networks by designing chips that can handle multiple tasks.

“If you open up a Cisco product, for example, you will often find NetLogic and Broadcom side by side,” he said. “Now we think, ‘How do we get them to work together? How do we integrate functionality onto a single device?’”

Broadcom has made 46 acquisitions since being founded in 1991, according to its website. The company has acquired smaller firms that develop complementary technologies in network communications as a primary driver of growth.

Analysts said the latest acquisition could help Broadcom expand into China, which has a burgeoning telecommunications infrastructure and is rapidly expanding its networks to handle a rising number of smartphone owners. Chinese router manufacturers such as Huawei and ZTE are customers of both NetLogic and Broadcom.

In recent years, Broadcom has been shadowed by charges that its founders committed securities fraud. Those charges were later dismissed by a federal judge.

The NetLogic deal, approved by the board of directors of both companies, is expected to be completed by the first half of next year, pending regulatory approval.

shan.li@latimes.com