Broadcom's CA Gamble: Hit Or Miss?

Can a chip maker successfully acquire an infrastructure company is a $18.9bn question.

There are certain entities in the technology world who can be best described as predators or more politely ‘habitual acquirers’. Oracle has long been recognized as one subscribing to this in organic growth pattern; to a lesser extent Cisco has been another. The chip company Broadcom is another prominent name in the list.

After its abortive attempt to acquire Qualcomm earlier in the year (Trump administration stalled its hostile bid), this week Broadcom announced its decision to acquire CA technologies for $18.9bn in cash. While another acquisition by Broadcom is not a shock, few expected the target to be a 42-year-old enterprise software firm. It is indeed reasonable to wonder if Broadcom is putting itself too far outside its traditional domain strength this time around.

FUTURE IS POSITIVE?

CA’s product lines include several enterprise software offerings that handle everything from managing software projects to monitoring the performance of apps and IT hardware to testing app security to protecting against unauthorized data access. In fiscal 2018 (ended in March), the company posted revenue of $4.24 billion (up 5%).

Broadcom might now look to streamline CA’s product line by selling assets deemed non-strategic. And to raise prices on CA products that command high market shares, have limited competition and claim a high level of customer stickiness. Some of CA’s mainframe offerings for developers and IT admins appear to fit this description.