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Broadcom to Acquire Pivotal in Stock Deal

Technology: Analysts say the semiconductor-firm purchase will help the chip maker in wireless sector.


Filling in one of the few remaining blanks in its portfolio of high-speed communication devices, Broadcom Corp. said Tuesday that it has agreed to buy a Pasadena semiconductor company for about $242.5 million in stock.

Pivotal Technologies Corp. would become the Irvine chip maker's ninth acquisition in the last 18 months and the third-most expensive.

Analysts, however, called Pivotal's products worth it. They predict the move would only compound Broadcom's dominance in set-top boxes and cable modems and would help the company gain valuable ground in the market for wireless products.

"It's scary how they stay ahead," said Leslie Ellis, senior technology analyst for Paul Kagan Associates. "They want to cram as much stuff as possible inside chips to keep meeting and anticipating the needs of their customers."

Broadcom said it would issue 1.94 million shares of common stock to purchase Pivotal, which is privately held. News of the acquisition was released after the stock market closed. On a dreadful day for Nasdaq, Broadcom lost $11.06 a share to close at $125.

Pivotal's 70 employees will remain in Pasadena, and its chief executive, K.C. Murphy, will become a Broadcom vice president and continue to supervise the division.

The deal hinged on two key Pivotal technologies that complement Broadcom's existing product line, said Henry T. Nicholas III, Broadcom's chief executive.

One allows for more secure transmission of high-resolution video content.

"Hollywood is very concerned with protecting content during that passage," Ellis said. "This will allow them to make a chip that moves a high-definition signal out of the box and into the TV in a way better than has been thought about before."

Pivotal also has developed a less expensive process for Bluetooth technology, which uses radio links instead of wires or cables to let electronic devices communicate with each other and the Internet.

Bluetooth technology has become an ultra-hot arena, pushing telephone companies to expand their wireless services to provide Internet access and e-commerce capabilities.

The seed of the deal grew from a development contract that Broadcom had with Pivotal. Broadcom came away impressed by its contractor's execution and talent and convinced that its founders were "kindred spirits," Nicholas said.

Pivotal is a slightly more mature company than the typical Broadcom acquisition. Most of the companies it has swallowed have 50 employees or less and products that have not yet reached the marketplace.

"They look for very strong technology, a complementary fit and something that will be more than the sum of its parts," said Jeff Lipton, a Hambrecht & Quist financial analyst.

For the 3-year-old Pivotal, becoming a Broadcom unit means saving capital and energy it would have had to spend on creating its own manufacturing and sales infrastructure, Murphy said.

"My next 50 hires were going to have to be manufacturing guys," he said.

Merging Pivotal's products with Broadcom's also means they can penetrate faster into more sectors, Nicholas said.

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