Why LSI Shares Skyrocketed 39% Today

Wireless chip specialist Avago Technologies  (NASDAQ: AVGO  ) has offered to acquire LSI Corporation  (NASDAQ: LSI  ) for $6.6 billion, as Avago is looking to diversify into enterprise storage while strengthening its wired infrastructure segment. The deal is expected to significantly and immediately be accretive to free cash flow and adjusted earnings per share once it closes. Avago management believes it can get LSI's operating margins up to approach Avago's current level of profitability.

The deal will mostly be funded by debt, but that shouldn't be a problem since Avago currently has no long-term debt outside of capital lease obligations. Avago expects to generate $200 million in annual operating synergies by the end of fiscal 2015, which is significant considering Avago's current operating expenses of roughly $600 million over the past four quarters. LSI generally spends between $200 million and $250 million in operations per quarter. This acquisition will help Avago diversify into a highly complementary business while mitigating any volatility associated with its status as an Apple iPhone supplier.

In this segment of Tech Teardown, Erin Kennedy discusses Avago's acquisition with Evan Niu, CFA, our tech and telecom bureau chief.

Interested in the next tech revolution?
Then you'll need to learn about the radical technology shift some say forced the mighty Bill Gates into a premature retirement. Meanwhile, early in-the-know investors are already getting filthy rich off of it... by quietly investing in the three companies that control its fortune-making future. You've likely heard of one of them, but you've probably never heard of the other two... to find out what they are, click here to watch this shocking video presentation!


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2766553, ~/Articles/ArticleHandler.aspx, 4/20/2014 10:48:15 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement