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Broadcom Inc AVGO

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Broadcom Continues Software Push With Reported Interest in SAS; Shares Overvalued

Abhinav Davuluri, CFA Sector Strategist

Analyst Note

| Abhinav Davuluri, CFA |

On July 12, The Wall Street Journal reported that Broadcom is in talks to acquire SAS Institute in a deal that would value the privately held software and analytics firm at $15 billion-$20 billion. Broadcom’s foray into enterprise software has picked up steam in recent years as the company bought CA Technologies and Symantec’s enterprise business. SAS boasts a suite of analytics software that could fit nicely with Broadcom’s existing software businesses tailored to enterprises. If the deal is successful, we think the breadth of software offerings could be used to increase switching costs for customers and thus strengthen Broadcom’s narrow economic moat. SAS generated $3 billion in sales in 2020, and according to its annual report, it is the only vendor named a leader in Gartner’s Magic Quadrant for Data Science and Machine Learning Platforms for all eight years of publishing. Our initial take on this potential deal is positive, and we are maintaining our $400 fair value estimate for Broadcom. We recommend that prospective investors wait for a wider margin of safety before committing capital to the company.

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Company Profile

Business Description

Broadcom--the combined entity of Broadcom and Avago--boasts a highly diverse product portfolio across an array of end markets. Avago focused primarily on radio frequency filters and amplifiers used in high-end smartphones, such as the Apple iPhone and Samsung Galaxy devices, in addition to an assortment of solutions for wired infrastructure, enterprise storage, and industrial end markets. Legacy Broadcom targeted networking semiconductors, such as switch and physical layer chips, broadband products (such as television set-top box processors), and connectivity chips that handle standards such as Wi-Fi and Bluetooth. The company has acquired Brocade, CA Technologies, and Symantec's enterprise security business to bolster its offerings in infrastructure software.

Contact
1320 Ridder Park Drive
San Jose, CA, 95131-2313
T +1 408 433-8000
Sector Technology
Industry Semiconductors
Most Recent Earnings Apr 30, 2021
Fiscal Year End Nov 1, 2021
Stock Type Cyclical
Employees 21,000

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