Tech stocks began the day absorbing shocks of the broader market, but took a fast turn higher following the announcement that Broadcom Corp. (BRCM) would acquire Silicon Valley chip maker NetlLogic (NETL) for $3.7 billion. The deal is the largest in Broadcom’s history; explained as an effort to expand its market opportunity. Broadcom is no stranger to chip production, the company develops its own, but they are largely focused on switching within networking gear and often require another chip, often times produced by NetLogic to achieve the end goal. The company considered expanding its own range of chips internally but decided to purchase Broacom as a means of quickly expanding its infrastructure business.
Some analysts are questioning whether the company paid too high a price for broadening that infrastructure after agreeing to a 57 percent premium on shares of NetLogic’s Friday closing price. That’s $50 in cash per share for the deal which is expected to close in the first half of 2012. Until today, shares of the company had never been able to surpass the $44 mark, but the announcement led NetLogic to rocket up over 50 percent and nearly meet the proposed per share price offered by Broadcom.
The 50 percent gain for NetLogic strengthened shares of a number of semi-conductor companies as investors made plays on suspicions that further M&A may be ahead for the sector. Among the companies to directly benefit from this on Monday was Cavium (CAVM). Cavium, a provider of integrated semiconductor processors for networking, communications, storage, wireless, security, video and connected home and office applications, had its best day in quite some time after speculation that it could the next acquisition target.
Micron (MU) experienced similar support on the same basis. Adding to incentives for the day was Micron’s appearance on UBS’s "most preferred" list. The chip-maker appeared on the list under speculation of an expected bottoming in DRAM memory chip pricing. Micron is the exclusive U.S.-based maker of DRAM modules and could stand to benefit from a drop in production in Asian competitors. UBS has awarded Micron a “buy” rating.
Share prices of Avago (AVGO) were also driven up the Broadcom deal. The company’s share prices have been rising consistently in recent trading as many expect sales of semi-conductors to exceed expectations for the year. Altera (ALTR) also appeared to get a boost from the announcement.
PMC Sierra Inc. (PMCS) also had a strong performance on the basis of the Broadcom merger.
Outside of semi-conductors, the tech sector wasn’t as strong but there were still some winners on high volume. Ongoing worry surrounding the Greek debt crisis and general European debt contagion led investors to historically strong tech outfits like Apple Inc. (AAPL), which was up slightly on high volume and Microsoft Corp (MSFT), which in spite of recent doubts after the purchase of Skype has been slowly edging back up.
Research in Motion (RIMM) the maker of Blackberry also did well today after months of negative news was deflected by the company’s strong performance in the Asian market.
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