Broadcom CEO Hock Tan soothed investor nerves over the chip giant’s planned $18.9 billion acquisition of CA Technologies, explaining that the firm will be able to sell hardware into new customer segments and that it expects to see a boost in sales tied to 5G network deployments.
Tan told investors during the company’s third fiscal quarter of 2018 conference call Thursday that he thinks Broadcom will be able to tap into CA Technologies’ current software customers to sell its switches, routers, and fiber optic equipment.
“Just as we have done with hypercloud players, we believe we can bring our compute offload solutions, our Tomahawk switches, Jericho routers, fiber optics, and our server storage connectivity portfolio directly to these same large enterprises that are buying CA software,” Tan told investors, according to transcripts. “Through CA we believe we have a big doorway to engage strategically with these customers and provide them direct access at very compelling economics to the same leading edge … storage and compute technologies that are used to enable the cloud service providers today.”
Broadcom recently rolled out an updated version of its Jericho programmable Ethernet switch chip that targets service provider networks, edge and core routers, cloud data centers, and enterprise campuses. The new chip has up to 10 Tb/s switching capacity per device.
That chip launch did not name customers but it did include a number of supporting quotes from the likes of AT&T, China Telecom, Tencent, Arista Networks, Huawei, ZTE, and Quanta Cloud Technology.
Broadcom’s Tomahawk chip was updated late last year with the ability to support 12.8 Tb/s speeds for Ethernet switching.
White Box Plans
Analysts did question Broadcom’s sales strategy, noting that many large telecom operators are already moving to emulate what hypercloud providers are doing in terms of using white box vendors to construct their own networking servers.
Tan countered by stating that with CA’s software technology Broadcom would be able to be an intermediary in partnering with white box providers to supply telecom operators with a complete box platform.
“Well, we are able to do now with our direct access to CA customers is established, strategic, and strong engagements with those end users … who would want to start doing it themselves,” Tan said. “In order to not just do it at low economics, but in order to access directly the latest … leading edge silicon software, products, [and] technology, which will enable them to build data centers just as leading edge as [what’s] available in the cloud. But we’ve seen that request coming and we are basically responding to it. This is not a pipe dream.”
Tan also told investors that he saw potential for Broadcom’s silicon for chips that work in higher spectrum bands to spill over into the ongoing push to use millimeter wave (mmWave) spectrum for 5G deployments.
“You also have to reach out in 5G to frequencies that are much higher, much more difficult to produce to put in a phone for communications, data communications. And I’m referring to frequencies to go way above 3 gigahertz now as the first [step],” Tan said. “And as we’re going more and more [to these] 5G phones, you have more frequencies, more requirements of our components in the same limited space of a phone. … And that’s where our capabilities, our technology in RF especially FBAR [film bulk acoustic resonator] comes into its own.”
The encouraging words and modest Q3 results caused a run on Broadcom’s stock, which surged more than 7 percent Friday to $232.58 per share.
The surge was welcomed as Broadcom’s stock has been battered since the firm announced its plans to acquire CA .
“The merger doesn’t make sense from a strategic technology standpoint. They exist on opposite ends of the market. They may find some synergies, but I don’t see these two companies as a natural fit,” Shamus McGillicuddy, senior analyst for network management at Enterprise Management Associates (EMA), told SDxCentral in an email after the deal was announced.
Broadcom’s stock swing was actually much larger as the company’s stock had hit more than $251 per share the day before the announcement, only to plunge more than 21 percent to a new 52-week low of $197.46 per share the day after the announcement.
Broadcom’s Q3 non-GAAP revenues increased 13 percent year over year to nearly $5.1 billion. Net income surged a more robust 21 percent to $2.3 billion for the quarter, which topped forecasts.