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Broadcom Scoops Up Software Player to Expand Security Business

Zacks Equity Research

Broadcom AVGO has apparently acquired New York, NY-based cyber risk analytics software provider, Bay Dynamics, per the equity incentive plan filed with the SEC or Securities and Exchange Commission.

However, there has been no official announcement from either side on the development. Nevertheless, the SEC filing notes that after the merger, Bay Dynamics will continue “as the surviving corporation and a wholly owned subsidiary of Broadcom.”

Bay Dynamics offers cyber risk analytics platform to enterprises which empowers them with data-driven actionable risk inference and enhance business value.

The company’s security analytics expertise since 2001 is expected to aid Broadcom in enhancing security business. Moreover, Bay Dynamics boasts of notable customer base including the likes of Comcast and UBS, which highlights strength in automated cybersecurity solutions.

Notably, Bay Dynamics has raised $31 million in funding, per Crunchbase data.

Inorganic Strategy to Boost Security Business Hold Promise

Broadcom has been aggressively pursuing strategic acquisitions to diversify end markets beyond semiconductors.

The company is looking to strengthen presence in the infrastructure software vertical particularly. This strategy is enabling the company to improve the top line.

On Nov 4, 2019, Broadcom announced that it has completed its acquisition of Symantec’s enterprise security business, with an aim to expand presence in infrastructure software market. Specifically, the company is banking on contribution from the acquisition of Symantec’s enterprise security business of approximately $1.8 billion in fiscal 2020.

Additionally, Bay Dynamics’ association with Symantec as a technology partner bodes well in this regard.

Further, the company is well positioned to benefit from synergies from acquisition of CA (for approximately $18.9 billion). In fact, CA’s strength in enterprise software offerings and substantial customer base is anticipated to enable Broadcom to explore the infrastructure software market and expand TAM.

In fourth-quarter fiscal 2019 results, the company’s Infrastructure software revenues (representing 21% of total revenues) soared 134% year over year to $1.20 billion.
 

Broadcom Inc. Revenue (Quarterly)

 

Broadcom Inc. Revenue (Quarterly)

Broadcom Inc. revenue-quarterly | Broadcom Inc. Quote

Moreover, increase in the global IT security spending and strength in endpoint security market remain tailwinds.

Furthermore, Broadcom is reportedly looking for a potential buyer to offload its radio-frequency or RF unit, per a WSJ report. The wireless-chip business, which the company intends to sell, offers filters utilized in cellphones to clarify signals. In case the deal leads to fruition, 2020 will mark the company’s departure from core semiconductor business and will help it focus on infrastructure software market.

Zacks Rank & Key Picks

Broadcom currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader sector are Keysight Technologies Inc. KEYS, Fortinet, Inc. FTNT and Marchex, Inc. MCHX. All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Keysight, Fortinet and Marchex is currently pegged at 9.1%, 14% and 15%, respectively.

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