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Broadcom buys chipmaker
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August 14, 2000: 11:51 a.m. ET
Semiconductor maker to pay $1.24B stock for NewPort, an optical chipmaker
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NEW YORK (CNNfn) - Semiconductor maker Broadcom Communications announced Monday that it will acquire privately held optical communications chipmaker NewPort Communications for roughly $1.24 billion in stock in an effort to gain a foothold in the fast-growing optical market.
Irvine, Calif.-based Broadcom, a leading maker of chips used to provide voice, data and wireless communications, expects to issue 5.5 million shares of stock in exchange for all outstanding shares of NewPort's preferred and common stock. On Friday, shares of Broadcom (BRCM: Research, Estimates) closed at 225-1/16.
 Monday's news sent shares of Broadcom up 8-15/16, or nearly 4 percent, to 234, in early trading.
The boards of both firms have approved the deal, which is expected to close within 60 days, upon approval of regulatory authorities.
Optical networking allows communications between computers, telephones and other electronic devices through the use of light. The sector is poised to take off and analysts predict the market will grow to $1.3 billion by next year.
"Newport evidently has a pretty good digital transceiver for the optical networking area that has low power and as time goes by power consumption is an important factor," John Geraghty, an analyst at Gerard Klauer Mattison, said to CNNfn.com.
"If you have too much power, you can't get as much data across the network and NewPort supposedly has a good chip in that segment, for power consumption," Geraghty said.
Morgan Stanley analyst Mark Edelstone told CNNfn.com he thinks the NewPort buy is an "excellent acquisition." He currently lists Broadcom with an "outperform" rating and price target of $300 a share.
"This will solidify Broadcom's efforts that they've already undertaken in the optical networking market," Edelstone said. "With optical networking, they have the ability to do very high-speed data communications to support Internet infrastructure."
Broadcom has been on a buying spree recently, having acquired private voice and data firm Silicon Spice Inc. for $1.2 billion in stock just a week ago, and San Jose, Calif.-based Altima Communications Inc. for $533 million in stock in July.
With Monday's acquisition of NewPort, Broadcom expects to build out its network using NewPort's optical communication products. Investors in Irvine, Calif.-based NewPort include Cisco Systems (CSCO: Research, Estimates), Lucent Technologies (LU: Research, Estimates) and Sumitomo, as well as the company's largest customers. Other top-tier clients include networkers Alcatel (ALA: Research, Estimates), Ciena (CIEN: Research, Estimates), and JDS Uniphase (JDSU: Research, Estimates).
Mattison's Geraghty said NewPort is actually located across the street from Broadcom in Irvine and its two founders were recruited for Broadcom a few years ago, but turned down employment opportunities to start their own company.
"Broadcom's stategy is to look at the fast-growing areas, and they see local and wide-area networks and also optical, so they're asking what they need to grow in those areas," said Mattison's Geraghty. "Since they don't have certain technologies, they've gone out and acquired the ones that fit in with their company." 
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