Silicon Valley-based chipmaker Broadcom just bought seemingly unrelated New York software company CA Technologies for $18.9B, paying 20% more than the company’s stock value.
Confused by the purchase, investors sent Broadcom’s stock plummeting 19%.
But, Broadcom CEO Hock Tan has a cult following thanks to his track record of successful and unexpected acquisitions, leading many to wonder: What’s Hock hiding up his sleeve?
Broadcom has boomed in the last decade
From 2009 to 2017, Broadcom’s share price increased 14x and the company became the largest player in the $400B chip market.
Within that time period, Broadcom’s revenue increased 49% annually — giving the company plenty of cash to pursue an aggressive expansion policy under the Hock-like supervision of its CEO.
“In Hock we trust”
Broadcom owes its remarkable growth to Hock Tan, a Malaysian immigrant who earned scholarships to MIT and Harvard Business School before building a global computer hardware empire.
Tan increased Broadcom’s revenue by purchasing smaller businesses, stripping them down to their highest-performing units, and incorporating them into the company. With this acquisition strategy, Tan managed to increase Broadcom’s profit margins by more than 20 percentage points.
Hock’s past success has earned him a fan club of financial analysts that say things like “In Hock We Trust” and “it’s hard to bet against this guy.”
But not everyone agrees that Hock rocks
After President Trump blocked Broadcom’s $117B hostile bid for Qualcomm earlier this year, Hock decided to invest in a software company to avoid the harsh light of antitrust scrutiny.
But this time, investors are skeptical the Hock-star could replicate his semiconductor success, driving Broadcom’s market cap down as much as $14.5B.
But Hock isn’t worried. He told reporters that this purchase would be the first “building block” of many acquisitions to come.
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