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What's going on?
More acquisitions afoot in the chip-making industry… This time two smaller firms are joining forces as Marvell Technology Group has agreed to buy Cavium in a deal worth about $6 billion.
What does this mean?
Historically, Marvells biggest business has been making chips for hard disk drives. As data storage has shifted into the cloud, its struggled to grow. In response, Marvell has tried to focus on network chips (e.g. the types that allow communication software, like video conferencing, to work) and networking just happens to be one of Caviums specialties. So while this deal will involve some cost cutting (a.k.a. cost synergies), its just as much about Marvell acquiring a way to accelerate its growth in the network chips sector.
Why should I care?
For markets: Its dealmaking galore in the chip industry.
Qualcomm, one of the biggest chip-makers in the world, is trying to finalize its purchase of NXP. Meanwhile, Broadcom is trying to buy Qualcomm, with or without NXP although Qualcomm has, so far, rebuffed these advances. Even arch-rivals Intel and AMD have agreed to explicitly cooperate. The dealmaking is partly a response to the industry becoming more competitive losing a few competitors through consolidation would help profitability. But its also because established players are trying to gain footholds in emerging areas, like chips for autonomous cars. Its a fast-changing industry that’s reacting with rapid-fire dealmaking.
The bigger picture: Chalk up a big win for one activist investor.
Activist investor Starboard Capital bought a stake in Marvell last year. Marvells CEO and president both subsequently resigned and new leadership took over. Investors appear to like the companys new direction the stock is up over 50% so far this year and its shares rose further on Monday (suggesting investors like the deals rationale). Whether or not activist investors are beneficial to shareholders is up for debate but in this instance their involvement seems to have helped materially.
Originally posted as part of the Finimize daily email.
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