Broadcom close to acquiring Brocade Communications Systems Inc.

Broadcom is the third largest U.S. semiconductor manufacturer by revenue, behind Intel and Qualcomm.

According to sources familiar with the matter at hand, Broadcom Ltd is said to be nearing a deal to acquire Brocade Communications Systems Inc. which makes network equipment. The deal is likely to be formally announced by the end of this week.

This deal would be the latest in a wave of consolidation sweeping the semiconductor industry.

Broadcom was earlier known as Avago. With Hock Tan at the helm it has been one of the most prolific acquirers in the semiconductor’s industry. In 2016 alone it completed an acquisition worth $37 billion and changed its name to Broadcom.

As per sources, if the Singapore and U.S. based Broadcom manages to acquire Brocade, who has nearly $1.5 billion in annual revenues, it would diversify its income streams.

The sources preferred the cover of anonymity since the matter is private.

Both Broadcom and Brocade declined to comment.

Sources have cautioned saying both companies are at an advanced stage in their discussion and there is a possibility of the talks falling apart.

With the merger talks in the air, Brocade’s market capitalization has risen to $4.5 billion. Its shares have risen by 6% to $11.24, while Broadcom’s closed 0.9% lower at $168.80 on Tuesday.

Brocade is the 3rd largest U.S. semiconductor manufacturer by revenue with a market capitalisation of $66.4 billion. The second and the top manufacturers being Intel and Qualcomm Inc., respectively.

In a research note to clients, Brian Colello, an analyst at Morningstar, wrote saying his biggest concern about this potential deal is Broadcom having to compete with some of its key customers, including Cisco Systems Inc. If it were to divest Brocade’s networking business, it could help mitigate this issue.

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