Broadcom to Buy Bluetooth Developer for $457.1 Million
In its biggest acquisition so far, Irvine chip maker Broadcom Corp. said Tuesday it would buy a company that develops the wireless bluetooth technology for stock worth $457.1 million.
Bluetooth, a hot new arena, uses radio frequencies instead of wires or cables to let electronic devices communicate with each other and over the Internet at short ranges.
Broadcom, which makes high-speed communications chips, will issue 3 million shares for the 87% of Innovent Systems Inc. in El Segundo that it doesn’t already own. Broadcom stock gained $5.69 a share to close Tuesday at $152.38.
The acquisition is Broadcom’s 10th and most expensive to date. The company announced its purchase of Pasadena semiconductor company Pivotal Technologies Corp. for about $242.5 million three weeks ago, marking Broadcom’s entrance on the bluetooth stage.
The two deals were intended to complement each other, said Broadcom’s chief executive, Henry T. Nicholas III. Pivotal Technologies offered Broadcom some key technology, while Innovent Systems has a more developed product focus, he said.
“This is very synergistic,” Nicholas said. “We now have the largest engineering work force dedicated to bluetooth technologies on the planet.” Fifty of Innovent’s 60 employees are engineers, he said.
The deal will give Broadcom a strong boost in its overall home networking sector, said Kimberly Funasaki, senior analyst at IDC research firm in Mountain View, Calif.
While the company has focused previously on cable set-top boxes, cable modems and high-speed networking, the company has shown an increasing interest in personal area networks and wireless technology, Funasaki said.
The acquisition is “very strategic” for Broadcom, said Mark Edelstone, a market analyst at Morgan Stanley Dean Witter.
“Innovent looks like they could be one of the leaders in the bluetooth market,” Edelstone said.
Brian Canny, an analyst for the market research firm Parks Associates in Dallas, also praised the acquisition. “Broadcom is the leader in phone line networking technology,” he said. “Now they’re looking at being a really strong player in radio frequency too.”
Innovent, founded in January 1999 by the brother-sister team of Reza and Maryam Rofougaran, received about $500,000 in seed money from Broadcom with the understanding that Broadcom would consider acquiring it, Nicholas said.
“We were able to help them develop this outside of Broadcom, off of our [financial statements], and to reap the rewards,” he said.
Bluetooth technology, which has yet to reach the consumer market, promises James Bond-like gadgetry, allowing devices to communicate with each other at distances of 10 to 15 meters without wires.
Laptop computers will be able to send documents to printers without a cable connecting the two. Motorists will talk on their cellular telephones through wireless headsets. People will use their Palm Pilots to shop over their televisions, just aiming and clicking away during commercials to get to the Internet. And office and home computer set-ups--now cluttered with tangles of wires connecting modems, printers and keyboards--will be untethered and look cleaner.
But some analysts question whether companies will be able to deliver on those promises, suggesting that the industry’s initial prices, as low as $5 a chip, may have been overly optimistic.
“A lot of the applications and developments are still going on behind closed doors. It’s still a lot of smoke and mirrors, an idea in development,” Canny said. “The market is wide open.”
Jill House, a senior analyst at IDC research, said there are “only so many people” working on bluetooth technology, and telecommunications firms are scrambling to acquire them.
In April, Broadcom’s cross-town rival, Conexant Systems Inc. in Newport Beach, acquired Philsar Semiconductor Inc., a Canadian developer of the technology.
Broadcom’s announcement Tuesday heightens its rivalry with Conexant, as the two compete for increasingly overlapping shares of the market.
Other key players in the bluetooth arena are Texas Instruments Inc., Ericsson Mobile Phones, Lucent Technologies Inc., Mitel Corp. and Cambridge Silicon Radio, Funasaki said. While these companies will directly compete with Broadcom in the development of semiconductors, they also are potential customers of Broadcom’s products for use in their systems, she said.
House said that about 25.3 million bluetooth devices will be produced this year, a number that IDC predicts will reach 452 million in 2004.
The first bluetooth products to reach consumers will be add-ons that can be purchased to upgrade electronic devices. They are expected to reach the market late this year.
