Key Points:
• Broadcom plans to spend $10 billion to buy back its own stock, which might hinder innovation and affordability for IT departments.
• Historic data suggests Broadcom prioritizes acquisitions over internal research and development, and spends less on R&D compared to its industry peers.
• Broadcom’s aggressive push after acquisitions often includes cost-cutting and price hikes, which may negatively impact customers, as seen with the acquisition of VMware.
Broadcom Stock Buyback Plan Raises Concerns Among IT Leaders
A recent announcement by Broadcom has sparked worries among IT department leaders and experts, as the company plans to spend up to $10 billion on buying back its own stock. This move may indicate that Broadcom will not invest in new innovation or affordability for its products, says Scott Bickley, advisory fellow at Info-Tech Research Group.
"Broadcom’s historic approach echoes their strategy. Enterprise IT leaders shouldn’t expect relief from their companies, as Broadcom firmly sticks to acquisitions over internal innovation," Bickley pointed out. He emphasized that Broadcom is "in the low end" when it comes to R&D spending as a percentage of revenue. This is an unusual approach, as the industry average for R&D spending typically ranges from 15% to 22%.
When it comes to acquiring new technologies, Broadcom tends to focus on buying them rather than developing them internally. Once acquired, Broadcom often applies a "ruthless cost-cutting" approach and raises prices to pay off debts quickly. This was seen in the company’s takeover of virtualization software vendor VMware, where prices for licenses have significantly risen.
Bleckley suggested that Broadcom’s low stock price is not a result of the company’s financial performance, but rather an industry-wide downturn due to the tariff war. In contrast, Broadcom’s annual revenues have grown significantly, reaching over $50 billion in FY24, and the company has seen improved gross margins and free cash flow.
According to Bliecky, this move to buy back stocks is a rational business decision. However, this may come at the expense of innovation and affordability in products for IT departments.
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