The tech world has spent the last 24 hours or so pretty confused at semiconductor manufacturer Broadcom’s purchase software company CA Technologies. The deal, which Broadcom sealed with $18.9 billion in cash, was, according to the company, a way of adding to its portfolio “mission critical technology businesses.” However, it seems the deal was just a little too left-field. Yesterday (Thursday 12 July), Broadcom’s shares dropped 13.8%. This equates to a drop of $14.5 billion.
This is the question that everyone seems to be asking. Ostensibly, the move is really about consolidating and driving Broadcom’s position in the tech space forward. However, as The Register pointed out, a quarterly review between executives in June made no mention of an acquisition. It certainly didn’t mention CA Technologies.
Speaking to Bloomberg, Cody Acree said “It’s the lack of obvious connection between the two businesses. What does Broadcom know about improving CA’s efficiencies?”
However, there may be some method in Broadcom’s apparent madness, even if investors don’t see it. Broadcom’s business in semiconductors – Silicon chips – is more unstable than the type of software solutions offered by CA Technologies. The semiconductor market depends a lot on fluctuations in the consumer gadget market.
However, even if this makes sense to the Broadcom excecutives, communicating this strategy would surely be absolutely essential. Surprising feints might look good in the long run but they can spook investors.
It will take some time to see if Broadcom’s move actually does work out. But it demonstrates the vast difference between the consumer and B2B markets in technology. It doesn’t seem outrageous to suggest that at the very least Broadcom feels anxious about the volatility of its core market at the moment; its acquisition of CA Technologies might be the insurance policy it has been searching for.
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