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Broadcom seeking strategic acquisitions to diversify revenue sources

Broadcom Inc. is looking to acquire companies not just in semiconductors, but also in other technology areas as the company looks to diversify operations to expand revenue models.

"We look to a broader area of technology, software and appliances," said Broadcom CEO Hock Tan, during an earnings call March 14 to discuss the company's fiscal first-quarter results.

The acquisitions will be strategic, thoughtful and timely to ensure easy integration, Tan said.

He cited the example of CA Inc., a software company acquired by Broadcom in a nearly $19 billion deal that closed in November 2018. Weakness in China and Broadcom's wireless business brought down semiconductor revenue in the fiscal first quarter of 2019, but revenue from CA's operations helped make up for some of that decline. The timely integration of CA was key in helping the company diversify, the CEO said.

"That's what we're doing with CA right now, and we're right in the thick of it ... as we drive down to generate the kind of business model we expect to get out of CA," Tan said.

Broadcom's semiconductor revenue for the fiscal first quarter ended Feb. 3 was $4.37 billion, declining from $4.96 billion in the year-ago quarter. Software revenue was $1.4 billion, growing from $328 million a year earlier. Broadcom's revenue in the first fiscal quarter was $5.79 billion, up 9% year over year.

CA's acquisition has also helped Broadcom expand its customer base, while providing a variety of revenue streams from enterprise customers, including renewals and subscriptions.

Broadcom in November 2017 made an ambitious bid to acquire U.S. chipmaker Qualcomm for roughly $110 billion, which was later revised to around $120 billion. The U.S. government ultimately blocked the deal over security concerns.

Going forward, Broadcom expects a boost in revenue from semiconductors in the second half of fiscal 2019 after bottoming out in the second quarter. The company is projecting total fiscal 2019 revenue to be $24.50 billion.

"This will be driven by strong product cycles in both wireless and networking, coupled with a recovery in broadband. Infrastructure software, on the other hand, is expected to sustain throughout the year," Tan said.

Broadband is expected to recover in the second half with growth in shipments of cable modems based on the new DOCSIS 3.1 standard.

"We've seen implementations across multiple carriers, service providers of DOCSIS 3.1, so that's very good," Tan said.