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Broadcom Has Plans to Acquire Allayer

Tech: Irvine-based chip maker says it will pay $275.8 million in stock for San Jose-based firm.

October 18, 2000|KAREN ALEXANDER | TIMES STAFF WRITER

Irvine communications chip maker Broadcom Corp. said Tuesday that it would acquire Allayer Communications, a privately held San Jose developer of optical networking communications chips, for $275.8 million in stock.

The purchase is Broadcom's 10th this year, and is aimed at broadening its product line of chips for high-speed broadband communications across all kinds of networks.

Broadcom said it will be able to combine Allayer's switching technology with its own products to speed the flow of information from so-called wide-area networks to smaller local-area networks, which link computers within an office or campus.

Broadcom, the dominant maker of chips for cable modems used in accessing the Internet, already enjoys a strong presence in local networks. Allayer's technology has focused recently on networks that cover broad regions.

Broadcom said it will trade about 1.23 million shares of its Class A Common Stock in exchange for all outstanding shares of Allayer. If Allayer meets additional performance goals, Broadcom said it would pay up to 300,000 more shares.

As in past acquisitions, Broadcom's stock gained after news of the purchase. Its shares rose $1.88 Tuesday, to close at $224.25 in Nasdaq trading.

According to the technology market research firm IDC, Allayer's 1999 revenue was about $19 million, and is projected to reach $70 million this year. The company was founded in 1997 and has 60 employees.

Sean Lavey, an IDC research analyst in Mountain View, Calif., said the Allayer deal is consistent with Broadcom's recent push to develop equipment that is used by Internet service providers in wide-area networks.

Lavey said the market for local-area networking equipment is still strong, growing at 20% to 25% per year. But in the wide-area side, networking equipment sales are expected to accelerate much more quickly, growing more than 50% per year, Lavey said.

Tuesday's deal has been approved by the boards of directors of Broadcom and Allayer, and is expected to close within 60 days. Broadcom said it expects to record a one-time charge for the acquisition in its fiscal fourth quarter, which ends Dec. 31.

The arena in which Allayer and Broadcom are positioning themselves is highly competitive.

Another acquisition announced Tuesday--a $1.88-billion stock deal in which Marvell Technology Group Ltd. of Bermuda will buy Israel's Galileo Technology Ltd.--creates a similar combination of technologies. Marvell is communications chip maker and Galileo makes chips for computer networking switches.

Investors, however, drove down Marvell's shares by 30%; shares fell $24.69, to close at $57.06 on Nasdaq, cutting the transaction's value by about $80 million. Galileo shares rose $1.73 to $32.50 on Nasdaq.

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