Broadcom plugs into security buzz with $10.7bn Symantec buy

Some lucky gamblers would have made a pretty penny heading into the weekend as Broadcom officially announces it will acquire security firm Symantec.

At the beginning of July, share price in Symantec surged north as the rumour mill started turning. Broadcom was the co-lead of the drama which added 13% to share price in a matter of hours, only for the gains to be cruelly slashed as various news sources burst the bubble. It was nothing but gossip at the time, though the first rumours have turned out to be true.

In a $10.7 billion deal, Broadcom will acquire the enterprise security business of Symantec, expanding the chipmaker into new markets. Tan is looking to spread the wings of the technology giant, with Symantec to offer a stepping stone into an increasingly lucrative segment.

“M&A has played a central role in Broadcom’s growth strategy and this transaction represents the next logical step in our strategy following our acquisitions of Brocade and CA Technologies,” said Hock Tan, Broadcom CEO.

“Symantec’s enterprise security business is recognized as an established leader in the growing enterprise security space and has developed some of the world’s most powerful defence solutions that protect against today’s evolving threat landscape and secure data from endpoint to cloud.”

Some might question why one of the worlds’ largest chipmakers is venturing into the world of enterprise software solutions, but this is a transition which has been underway for some time. Broadcom is not giving-up on semiconductors whatsoever, but it is diversifying the revenue streams.

In November 2017, Broadcom closed the $5.5 billion acquisition of Brocade, a specialist in data and storage networking products, which was followed in July 2018 by the $18.9 billion purchase of CA Technologies, a company which offers various IT software products and solutions. Adding Symantec into the mix simply continues the drive towards enterprise IT.

Looking at the investor presentation, in two and a half years Broadcom has undergone considerable evolution. After the closure of the Symantec acquisition, semiconductors will account for 71% of the total revenues, with software solutions taking the remaining 29%. And of course, with new regulations, new consumer attitudes and new purchasing patterns, security has the potential to become a lucrative area.

The Broadcom management team suggest this acquisition is a foot-in-the-door of a $161 billion addressable security market, with Symantec market share leader in some interesting segments. In the stable markets of endpoint security and web security services, a combined value of $1.25 billion, Symantec is the market leader, where is also leads the way in the fast-growing data loss prevention segment.

One question which some investors might have is whether the Commander-in-Chief will get involved.

Will the White House weight-in?

Trump has been increasingly weighing into the technology industry over the last two years, perhaps seeing this influential segment as a means to counter the aggressive progress made by China in the global economy.

Although the Brocade and CA Technologies acquisitions passed without issue, who can forget the failed acquisition of Qualcomm for $117 billion. This was deemed a move contrary to national security, with Trump signing an executive order to block the acquisition. The Oval Office has remained quiet to date, but it would not surprise anyone to see the President wading in.

If Broadcom acquiring Qualcomm, a company critical to the US’ standing in the 5G race, was seen as a national security threat, who is to say the same theory could not be applied to Symantec. Security is a tender topic at the moment, and Symantec currently works with 86% of the Fortune 500. Blocking the deal is a long-shot, but it is worth keeping a weary eye on the White House.

Of course, should the transaction complete in a suitable period of time, Broadcom will have to make the security segment actually work. Just ask Intel how difficult this is.

Let’s not forget, security acquisitions can bite back

After acquiring security giant McAfee in 2010 for $7.68 billion, Intel endured years of pain trying to make the security segment work for it. After six years of struggle, Intel attempted to sell the security unit, before settling for a spin-off strategy after failing to find a hungry-enough buyer.

Although Intel failed, what is worth noting is the world is a different place nowadays. Thanks to numerous scandals and data breaches over the last few years, as well as the introduction of more punishing regulation around the world, companies are more aware of security threats and are allocating more funds to the various departments. This includes data management and front-line solutions.

In the past, security has been nothing more than political rhetoric or a means for CEOs to pacify investors and customers. Speeches were regularly made concerning the importance of creating security and resilient products, though this rarely translated into investments into security products and solutions.

Attitudes do seem to be changing, more investment is being made into hardening defences and managing risk, though the question is how quickly this evolution is taking hold. This will define whether this is a good acquisition for Broadcom.

The risks are very evident. Recent research from IBM suggests the average cost of a security breach in the US is $8.19 million, almost double the average worldwide. Those who are able to contain a breach to 200 days can reduce the financial impact by an average of $1.2 million; there is certainly financial incentive to take note of the increasingly complex security demands.

Security is now a major component of the digital mix. Few CEOs would have wanted to spend so much on a cost-centre, but reality has caught up; the risks are such that security cannot be swept aside or bolted onto new initiatives nowadays.