Broadcom buys AMD’s Digital TV unit

The much touted competition from Broadcom is inching a little closer, but not (yet) in IPTV. The logical next step would be HDTV chips though.

From Marketwatch:

  • Advanced Micro Devices Inc. has agreed to sell its digital-TV business to Broadcom Corp. for nearly $193 million in cash, the chipmaker said Monday.
  • The deal, expected to close by Dec. 31, is part of an effort by Sunnyvale, Calif.-based AMD to better compete against archrival Intel Corp. by sharpening its business focus. The company’s also working to expand its business in graphics chips against Nvidia Corp., the top player in that sector.
  • Terms call for Broadcom to take over AMD’s unit that makes chipsets used in digital televisions. The unit employs about 530 workers with some others in support positions who will transfer to Broadcom as part of the arrangement. A portion of the payment, AMD said, will be placed into escrow “pursuant to the terms of the definitive asset purchase agreement.” Broadcom said it may record a one-time charge for the deal but hasn’t yet determined the amount

Not everybody is enthusiastic:

  • SAN JOSE, Calif. — Digital TV chips are no longer a prime time market. In fact, Broadcom Corp.’s long-awaited move to acquire Advanced Micro Devices Inc.’s DTV chip business presents some challenges for Broadcom, according to analysts.
  • On Monday, Broadcom entered into a definitive agreement to acquire AMD’s DTV chip business for approximately $192.8 million in cash. As part of the deal, approximately 530 members of AMD’s DTV team and support staff, located in six design centers around the world, will be invited to join Broadcom.
  • ”This deal has been expected by the Street ever since AMD announced that it is putting the unit up for sale and Broadcom has been thought to be the most logical buyer of the business given that it has become one of the leading players of DTV together with MediaTek,” Avi Cohen, head of research at Avian Securities, in a report.
  • ”For AMD, this will allow them to raise cash to improve its balance sheet position and re-align its core business,” Cohen said. ”At the same time it will give them a way to exit a business that has become very competitive–with competitors like Trident, Genesis Micro (now part of ST Micro), Pixelworks, and many others struggling for the past couple of years.”
  • In fact, the DTV chip market is a tough sector. ”While this segment was very hot earlier this decade with Trident most notably enjoying past success at Sony, silicon vendors have come under enormous ASP pressure–a trend we expect will continue–as OEMs have sought to substantially increase unit shipments of digital TVs by shifting the work on low-end TVs to ODMs in order to drive lower retail prices.”

A couple of observations from us:

  1. Digital media chip market has become a bit of a commodity business
  2. The acquisition does give broadcom a necessary capability for competing on other platforms (like IPTV), it’s like a necessary building block
  3. BRCM could leverage it into the HDTV market, but this market provided Sigma with only 2% of revenue (both 2007 and expected in 2008) [Investor Presentation July 2008]