Avago Acquires PLX to Broaden Product Portfolio - Analyst Blog

Leading analog semiconductor manufacturer Avago Technologies Limited AVGO recently inked a definitive agreement to acquire PLX Technology Inc. PLXT for approximately $309 million in cash. The strategic move is aimed to complement Avago's existing server storage connectivity and networking ASIC (application-specific integrated circuit) products that serve the enterprise and data center market. This, in turn, is expected to augment Avago's revenues, as the industry braces for more consolidation amid a challenging macroeconomic environment.

Based in Sunnyvale, CA, PLX is a premier manufacturer of semiconductor-based PCI Express (PCIe) connectivity solutions that provide more bandwidth and is compatible with other existing operating systems. Based on the PCIe Gen3 standard, PLX's ExpressFabric offers a wide range of new enterprise storage and other key data center applications. It creates a universal interconnect that significantly improves the existing architecture and builds a powerful, cost-efficient PCIe interconnect that enables I/O-sharing applications.

The core PLX business is deemed to be a strategic fit for Avago, further adding a new dimension to next generation data center architectures. In addition to cost synergies from a combined resource pool as the cost of designing and building semiconductors rises, the acquisition is likely to improve the operating margin of the combined company, creating greater scale to further drive innovation into the datacenter. The acquisition is expected to be immediately accretive to Avago's non-GAAP earnings and is likely to close in the fourth quarter of the current fiscal ending Nov 3, 2014, subject to the fulfillment of all the mandatory closing conditions.  

The all-cash transaction will be funded by Avago's available cash in hand. The purchase price equates to a cash payment of $6.50 for each PLX share, representing the at-par closing price of the day the deal was announced.

With an expertise in compound semiconductor design and processing, Avago is a leading designer, developer and global supplier of a broad range of analog, mixed signal and optoelectronics components and subsystems. The company boasts over 4,200 patents serving 3 primary target market segments: wireless communications, wired infrastructure, and industrial and other.

Avago presently has a Zacks Rank #1 (Strong Buy). Other stocks that are worth considering in the industry include Advanced Semiconductor Engineering Inc. ASX and Alpha & Omega Semiconductor, Ltd. AOSL, both carrying a Zacks Rank #2 (Buy).