CELEX: 32015M7686
Language: en
Date: 2015-11-23 00:00:00
Title: Commission Decision of 23/11/2015 declaring a concentration to be compatible with the common market (Case No COMP/M.7686 - AVAGO / BROADCOM) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

Brussels, 23.11.2015
C(2015) 8382 final

[pic]

[pic]

|                                                                       |To the notifying party:                                                |

Dear Sir/Madam,

Subject:    Case M.7686 - Avago / Broadcom
Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1] and Article 57 of the Agreement  on  the  European  Economic
Area[2]

    1) On 2 October 2015, the European Commission ("Commission") received notification of a proposed concentration pursuant to Article 4  of  the
       Merger Regulation by which the undertaking Avago Technologies Limited ("Avago" or the "Notifying Party", Singapore)  acquires  within  the
       meaning of Article 3(1)(b) of the Merger Regulation sole control of the whole of the undertaking  Broadcom  Corporation  ("Broadcom",  the
       USA) by way of acquisition of shares (the "Transaction").[3] Avago and Broadcom together are referred as the "Parties".

       THE PARTIES

    2) Avago is active globally in the design, manufacture, marketing and sales of a range of semiconductor  devices  for  use  in  wireless  and
       wireline communications, storage applications and industrial applications.

    3) Avago is the successor of the Semiconductor Products Group (“SPG”). SPG, until 2005, was part of Agilent  Technologies,  Inc.,  which,  in
       turn, was originally spun off from HP’s semiconductor division. Avago is dual-headquartered in San Jose, California  (United  States)  and
       Singapore. Avago is listed on the NASDAQ Global Select Market under the symbol “AVGO”.

    4) Broadcom is a global provider of semiconductor solutions for wireless and wireline communications; it is incorporated  in  California  and
       its principal executive offices are in Irvine, California (United States). Broadcom is listed on the NASDAQ Global Select Market under the
       symbol “BRCM”.

       THE OPERATION

    5) Avago is not controlled by any company or natural person. Its capital share is fragmented and the  main  shareholders  are  Capital  World
       Investor with 11.1%, JP Morgan Chase & Co. with 7.8% and Capital Research Global Investors with 7.5%.

    6) Similarly also Broadcom is not controlled by any company or natural person. Its capital share is fragmented and the main shareholders  are
       FMR LLC with 7.7% of Class A shares, Blackrock Inc. with 5.5% and Vanguard Group Inc. with 5.1%.

    7) Pursuant to an Agreement and Plan of Merger of 28 May 2015, the Parties will undertake several steps including the transfer of shares  and
       mergers between different companies. First, shares of Avago will be transferred to  a  subsidiary  of  a  holding  company  ("HoldCo")  in
       exchange for an equivalent number of shares of that holding company. Next, Broadcom will merge with two subsidiaries of HoldCo,  providing
       shareholders of Broadcom with the ability to receive shares of HoldCo in exchange. Ultimately, as a  result  of  these  steps  Avago  will
       acquire control of Broadcom through HoldCo.

    8) The Transaction therefore constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

       EU DIMENSION

    9) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million[4]  (Avago:  EUR  3  495  million;
       Broadcom: EUR 6 344 million). Each of them has an EU-wide turnover in excess of EUR 250 million (Avago: EUR […] million; Broadcom: EUR […]
       million), but they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State.

   10) The notified operation therefore has an EU dimension under Article 1(2) of the Merger Regulation.

       RELEVANT MARKETS

11) The Transaction concerns semiconductor devices.

1 Overview of the semiconductor industry

   12) Semiconductors are materials that conduct electricity more easily than insulators (like glass)  but  less  easily  than  conductors  (like
       copper), which makes them ideal for manipulating electronic signals  (reversing,  amplifying).  Semiconductor  materials,  most  typically
       silicon, are used in semiconductor devices like microchips and their components (for example diodes and transistors) Semiconductor devices
       can be found in virtually every electronic device today. The end-products that contain semiconductor devices  range  from  base  stations,
       mobile phones, computers, domestic appliances and cars to medical equipment, identification systems, large-scale industry electronics  and
       aerospace equipment. Semiconductor devices are  rarely  bought  as  end-products  by  consumers.  They  are  mainly  bought  by  equipment
       manufacturers in virtually all sectors within the electronic equipment industry.

   13) According to a classification of semiconductor devices based on various industry reports (Gartner, Strategy Analytics and  ABI  Research),
       there are four main categories of semiconductor devices: (i) integrated circuits (“ICs”), commonly referred to as "chips", or "microchips"
       (ii) discretes, (iii) optical semiconductors, and (iv) sensors and actuators. In a recent decision the Commission  concluded  that  it  is
       appropriate to distinguish semiconductor devices within these four categories.[5]

   14) Moreover, ICs can be distinguished according to their purpose between “general purpose” ICs on the one hand  and  ICs  used  for  specific
       application on the other hand, the latter comprising the following three main sub-segments: (i) Application Specific  Integrated  Circuits
       ("ASICs"), that are custom-made ICs created by and for a specific Original  Equipment  Manufacturer  ("OEM"),  (ii)  Application  Specific
       Standard Products ("ASSPs") which may be described as “off-the-shelf” or “merchant” ICs, which can be purchased in  identical  form  by  a
       number of different customers, and (iii) Field Programmable Gate Arrays, which can be configured  and  re-configured  by  customers  after
       fabrication to perform desired logic and processing functions.

   15) In addition, ASICs on one hand and ASSPs on the other hand, can each also  be  distinguished  according  to  product  categories  such  as
       consumer, data processing, automotive, industrial, military/aerospace, and communications. The segments of ASICs  for  communications  and
       ASSPs for communications can each be sub-divided in wireline communications and wireless communications.

   16) Lastly, within the category of wireline ASICs and ASSPs it is possible to distinguish between the following products: (i) ASICs/ASSPs  for
       Ethernet switches (electronic devices that connect the  nodes  on  a  network,  by  receiving,  processing  and  forwarding  data  to  the
       destination; (ii) ASICs/ASSPs for Ethernet controllers (found at the transmitting and receiving ends of an Ethernet network  and  enabling
       devices to interact with each other by implementing Ethernet connectivity protocols); and (iii) ASIC/ASSP Physical layer devices  ("PHYs",
       which connect the physical medium of an Ethernet network and the  digital  processing  functions  of  the  network,  and  perform  "signal
       conditioning").[6]

   17) A number of different ICs as well as other components are used within data centers (so called "IT stacks", also referred to as  the  "data
       center stack"). As data centers use many different types of equipment, for instance for networking, computing or for storage of data,  the
       ICs in the data center stack could belong to very different product markets.[7]

   18) Of relevance to the case are also so-called “SerDes” ("Serializers/Deserializers"), that is to say IC  components  that  allow  fast  data
       transmission between ICs.

   19) The Parties have overlapping activities in relation to (i)  wireline  communication  ASICs,  including,  in  particular,  Ethernet  switch
       ASICs[8], (ii) wireline communication ASSPs,[9] and (iii) SerDes IP.

2 Wireline communication ASICs

1 Introduction

   20) Wireline communication ASICs are manufactured according to individual specifications of the customer.  In  an  ASIC  development,  the  IC
       vendor provides its IP blocks[10] to the customer, and the customer combines this vendor IP with its own IP to create a so-called "logical
       design" of the chip. In further cooperation with the ASIC vendor a "physical design" is defined. The ASIC vendor then defines the place of
       all electronic components of the chip ("placing") and defines the exact design of all the wires needed to connect the  components  of  the
       chip ("routing"). The ASIC vendor then undertakes the so-called “physical verification” process to make sure that the chip works  and  has
       the frequency and other performance requirements that the OEM requested. Finally, unless the ASIC vendor has its own foundry it outsources
       the manufacturing to a third-party foundry.

   21) Within the broad segment of wireline communication ASICs, the Parties activities overlap in particular  in  the  specific  sub-segment  of
       Ethernet switch ASICs.

   22) An Ethernet switch is an electronic device that connects the nodes on a network, by receiving,  processing  and  forwarding  data  to  the
       destination via the Ethernet protocol. Ethernet switches are used in almost any Local Area Network (“LAN”), which is a  network  that  may
       include servers, computers, peripherals, and other devices (each of them a “node”), operating in a limited area, generally a building.

   23) The functions of an Ethernet switch can be performed both by ASSPs and by ASICs depending on the process used to reach the final design of
       the IC.

2 Product market definition

1 Notifying Party's view

   24) The Notifying Party submits that ASICs are a separate product market from ASSPs and that  wireline  communication  ASICs  are  a  separate
       product market from ASICs used in other product categories (e.g. from ASICs used in wireless communications or consumer  electronics,  see
       paragraph (15).)

   25) According to the Notifying Party, on the demand-side ASICs are an option only for OEMs that have a relevant in-house development team  and
       such a team requires significant resources which can be justified only for OEMs with sufficient large scale volumes in the final  products
       for which the IC is used. A customer without such in-house development team would not be in a position to purchase ASICs.

   26) On the supply-side, the Notifying Party submits that the provision of ASIC design support to OEMs focuses on the provision of specialized,
       and high quality, IP blocks and thus requires a different skill set from that required to sell ASSPs. From a vendor perspective, each ASIC
       can be sold only to the one customer with whom it was developed.

   27) Moreover the Notifying Party submits that wireline communication ASICs are a separate product market from ICs used in other product  areas
       mainly because of a lack of demand-side substitutability; for instance ASICs designed for wireline  communication  cannot  be  substituted
       with ASICs designed for wireless communication without incurring significant re-design cost of the final product by the customers.

   28) Therefore the Notifying Party submits that there is a separate product market for wireline communication ASICs.

   29) When considering the potential market for Ethernet switch ASICs, Avago submits that from a supply-side perspective there  is  no  need  to
       define a separate relevant market for Ethernet switch ASICs within the broader market for wireline communication ASICs.

   30) The Notifying Party argues that within Avago, the same division that is working on Ethernet switches is  also  working  on  several  other
       wireline communication ASICs such as PHYs ASICs, ASICs for routers and host adapters.

2 Results of the market investigation and Commission's assessment

   31) When considering different functionalities, the majority of customers and competitors which responded to the market investigation  replied
       that ICs used for wireline communication can be distinguished from ICs used in other product areas (for instance  wireless  communication,
       automotive and data processing).[11]

   32) The market investigation results also suggest that separate relevant markets exist for ASSPs, on the one hand, and  ASICs,  on  the  other
       hand.[12] More specifically, market participants indicated that they treat ASICs and ASSPs separately.[13] In addition,  ASICs  and  ASSPs
       have different characteristics in terms of size and technology, different design, need different know-how, have different  costs  and  are
       produced in different production lines.[14] Further, the respondents to the market investigation indicated that there is a certain  degree
       of supply-side substitutability between wireline communication ASSPs and wireline communication ASICs, but that there is less  demand-side
       substitutability between those two products.[15]

   33) In sum, the results of the market investigation indicate that it may be appropriate to distinguish between markets for  ICs  according  to
       product areas, and that separate relevant markets exist for ASSPs and ASICs within each product area.

   34) As regards the potential market for Ethernet switch  ASICs,  despite  some  respondents  pointing  out  that  Ethernet  switch  ASICs  are
       substitutable with Ethernet switch ASSPs, the responses of the majority of customers and competitors suggest the existence of  a  separate
       relevant product market for Ethernet switch ASICs within the broader market for wireline communication ASICs mainly due to lack of  demand
       side substitutability. The respondents pointed out that the functionalities of an Ethernet switch are specific to a switch and  cannot  be
       performed by any other wireline communication IC.[16]

   35) Based on the above, the Commission concludes that, for the purpose of this decision, ASICs for wireline communication are  in  a  separate
       product market than ASSPs used for wireline communication. Other elements of the product market definition, including  the  definition  of
       further, narrower markets within wireline communication ASICs, can be left open for the purpose of this decision as the  Transaction  does
       not raise serious doubts as to its compatibility with the internal market with regard to wireline communication ASICs,  and  any  possible
       segments thereof, under any plausible product market definition.

3 Geographic market definition

   36) In previous cases, the Commission considered that the geographic scope  of  semiconductor  markets  may  be  at  least  EEA-wide,  if  not
       worldwide, although the precise scope of the geographic market was ultimately left open.[17]

1 Notifying Party's view

   37) The Notifying Party submits that the different product markets for semiconductor devices and IP blocks, including the potential market for
       Ethernet switch ASICs, are all worldwide in scope, because (i) transport costs are null or very low; (ii) location is not a factor  for  a
       supplier selection; (iii) price differences among regions are insignificant; (iii) customers  are  global  players  and  typically  source
       globally; and (v) there are no quotas, tariffs or technical specifications limiting trade.

2 Results of the market investigation and Commission's assessment

   38) All the respondents to the market investigation considered that the geographic scope of the markets  for  all  the  relevant  products  is
       worldwide.[18]

   39) In light of the results of the market investigation, for the purposes of  this  decision,  the  Commission  concludes  that  the  relevant
       geographic market for wireline communication ASICs, including the  potential  market  of  Ethernet  switch  ASICs,  should  be  considered
       worldwide in scope.

3 Wireline communication ASSPs

1 Introduction

   40) ASSPs for wireline communications can be purchased in identical form by a number of different  customers.  In  an  ASSP  development,  the
       vendor uses its own IP to develop an IC that performs a particular function, and this IC can be used by multiple customers.

   41) Just like in the case of wireline communication ASICs it may be possible to distinguish narrower segments such as  Ethernet  switch  ASSPs
       (see paragraph (23), and wireline PHY ASSPs.

2 Product market definition

1 Notifying Party's view

   42) The Notifying Party submits that ASSPs are a separate product market from ASICs and that  wireline  communication  ASSPs  are  a  separate
       product market from ASSPs used in other product areas.

   43) According to the Notifying Party on the demand-side, ASSPs are "off-the-shelf" solutions which do not  require  the  customer  to  have  a
       dedicated in-house development team to work on the specific design of the IC.

   44) In the Notifying Party's view, the supply of ASSPs involves the sale of a product which is already fully designed and manufactured by  the
       vendor, as opposed to the design phase with the customer required to supply an ASIC. It follows that the same ASSP can be sold to  several
       customers at the same time.

   45) Moreover, just like in the case of ASICs (see paragraph (27)) the Notifying Party submits that wireline communication ASSPs are a separate
       market from ASSPs used in different product areas, for instance wireless communication ASSPs.

2 Results of the market investigation and Commission's assessment

   46) As already noted in paragraphs (31) and (32), the market investigation indicated that it may be appropriate to distinguish between markets
       for ICs according to product areas,[19] and that separate relevant product markets exist for wireline communication ASSPs and ASICs.[20]

   47) As regards the potential market for Ethernet switch ASSPs, as discussed in paragraph (34) the market investigation results indicated  that
       there might be a separate relevant product market for  Ethernet  switch  ASSPs  within  the  broader  market  for  wireline  communication
       ASSPs.[21]

   48) Based on the above, the Commission concludes that, for the purposes of this decision, ASSPs for wireline communication are in  a  separate
       product market than ASICs used for wireline communication. Other elements of the product market definition, including  the  definition  of
       further, narrower markets within wireline communication ASSPs, can be left open for the purpose of this decision as the  Transaction  does
       not raise serious doubts as to its compatibility with the internal market with regard to wireline communication ASSPs,  and  any  possible
       segments thereof, under any plausible product market definition.

3 Geographic market definition

   49) In previous cases, the Commission considered that the geographic scope  of  semiconductor  markets  may  be  at  least  EEA-wide,  if  not
       worldwide, although the precise scope of the geographic market was ultimately left open.[22]

1 Notifying Party's view

   50) The Notifying Party submits that the different product markets for semiconductor devices and IP blocks are all worldwide in scope, because
       (i) transport costs are null or very low; (ii) location is not a factor for a supplier selection; (iii) price  differences  among  regions
       are insignificant; (iv) customers are global players and typically source globally; and (v) there are  no  quotas,  tariffs  or  technical
       specifications limiting trade.

2 Results of the market investigation and Commission's assessment

   51) All the respondents to the market investigation considered that the  geographic  scope  of  the  markets  for  the  relevant  products  is
       worldwide.[23]

   52) In light of the results of the market investigation, for the purposes of  this  decision,  the  Commission  concludes  that  the  relevant
       geographic market for wireline communication ASSPs should be considered worldwide in scope.

4 SerDes IP licensing

1 Introduction

   53) Fast data transmission between chips often requires converting the parallel data into serial form. As a result, ICs often include a SerDes
       that converts the data stream from parallel to serial, consolidating multiple parallel series of bits into a single data stream. Once  the
       data reaches the destination, it is de-consolidated again from serial to parallel. SerDes are  found  in  various  wireline  ICs  such  as
       Ethernet switch ICs and PHYs.

   54) As SerDes constitute a separate block within a chip and require specialized know-how; the IP for SerDes is often licensed separately.

      [pic]

       Figure 1 - SerDes scheme (Source: Form Co, Figure 8)

   55) SerDes IP can be further distinguished by the speeds in which they perform their tasks. Different SerDes speeds include 1G[24], 10G,  25G,
       50G and 100G. Those speeds are indicative and referred to as standard speeds. There are SerDes with similar speeds, for instance  28G  and
       56G, which will be considered 25G and 50G respectively for the purposes of this decision.

2 Product market definition

1 Notifying Party's view

   56) The Notifying Party submits that it is not necessary to consider a separate market for each different speed of SerDes IP.

   57) In this regard, the Notifying Party submits that from demand-side the customer can achieve a certain speed using a combination of  SerDes,
       for instance it can reach 25G using two 10G SerDes together with five 1G SerDes  or  alternatively  by  using  one  25G  SerDes,  the  two
       solutions being equivalent.[25] As such the IPs of different speed SerDes do not form separate markets.

   58) The Notifying Party also argues that SerDes IPs for different speeds are substitutable from the supply side  in  that  SerDes  of  1G  and
       upwards require the same kind of know-how and R&D effort with only limited additional investment and time.[26]

2 Results of the market investigation and Commission's assessment

   59) The majority of respondents to the market investigation indicated that SerDes IP is a separate product market from other IP blocks used in
       ICs and that some market participants have an in-house solution, while others license it from third parties.[27]

   60) When considering the possible different speed SerDes, the majority of respondents considered that within SerDes IP separate markets should
       be distinguished for each standard speed (1G, 10G, 25G, 50G and the future 100G).[28]

   61) Further contacts with market participants highlighted the importance of the production technology node for SerDes IP (for  instance  32nm,
       28nm and 16nm) but the Commission considers that the evidence is not conclusive as to whether separate  markets  should  be  distinguished
       along these lines.[29]

   62) In any event, for the purpose of this decision the precise product market definition can be left open, as the Transaction does  not  raise
       serious doubts as to its compatibility with the internal market with regard to IP blocks, and any relevant  segments  therein,  under  any
       plausible product market definition.

3 Geographic market definition

   63) In previous cases, the Commission considered that the geographic scope  of  semiconductor  markets  may  be  at  least  EEA-wide,  if  not
       worldwide, although the precise scope of the geographic market was ultimately left open.[30]

1 Notifying Party's view

   64) The Notifying Party submits that the different product markets for semiconductor devices and IP blocks are all worldwide in scope, because
       (i) transport costs are null or very low; (ii) location is not a factor for a supplier selection; (iii) price  differences  among  regions
       are insignificant; (iv) customers are global players and typically source globally; and (v) there are  no  quotas,  tariffs  or  technical
       specifications limiting trade.

2 Results of the market investigation and Commission's assessment

   65) All the respondents to the market investigation considered that the  geographic  scope  of  the  markets  for  the  relevant  products  is
       worldwide.[31]

   66) In light of the results of the market investigation, for the purposes of  this  decision,  the  Commission  concludes  that  the  relevant
       geographic markets for SerDes IP licensing should be considered worldwide in scope.

       COMPETITIVE ASSESSMENT

   67) As set out in paragraph (19) above, the Transaction gives rise to horizontal overlaps  in  relation  to  potential  markets  for  wireline
       communication ASSPs, wireline communication ASICs and Ethernet switch ASICs. In  addition,  the  Transaction  gives  rise  to  a  vertical
       relationship between the upstream activities of Avago in SerDes IP licensing and the downstream supply of Ethernet switch ASSPs (in  which
       Broadcom is active). Finally, the Transaction would give rise to a conglomerate relationship between the wireless  communication  ICs  and
       hardware products of the so-called IT Stack where both Parties are active. The horizontal overlaps,  and  the  vertical  and  conglomerate
       relationships that would be a result of the Transaction will be assessed in detail in the present section.

1 Horizontal overlaps

1 Wireline communication ASICs

   68) The Parties' activities overlap and give rise to an affected market in wireline communication ASICs.

|Company                            |Market share % (in value calculated on|
|                                   |2014 revenues)                        |
|Avago                              |[20-30]%                              |
|Broadcom                           |[0-5]%                                |
|Combined                           |[20-30]%                              |
|GlobalFoundries/IBM                |[10-20]%                              |
|HiSilicon Technologies             |[10-20]%                              |
|STMicroelectronics                 |[5-10]%                               |
|Texas Instruments                  |[5-10]%                               |
|Others                             |[20-30]%                              |

       Table 1- Market shares for wireline communication ASICs (Source: Notifying Party)

   69) Similarly, the Transaction gives rise to an affected market if the potential market for Ethernet switch ASICs within  the  broader  market
       for wireline communication ASICs is considered. The Transaction would not give rise  to  other  affected  markets  in  relation  to  other
       potential narrower markets within the broader market for wireline communication ASICs, for instance in PHYs.

|Company                          |Market share % (in value calculated on|
|                                 |2014 revenues)                        |
|Avago                            |[20-30]%                              |
|Broadcom                         |[0-5]%                                |
|Combined                         |[20-30]%                              |
|GlobalFoundries/IBM              |[30-40]%                              |
|Texas Instruments                |[20-30]%                              |
|STMicroelectronics               |[5-10]%                               |
|Others                           |[5-10]%                               |

       Table 2- Market shares for Ethernet switch ASICs (Source: Annex 18 to Form CO)

1 Notifying Party's view

   70) The Notifying Party submits that the Transaction would not raise any competition concern in the market for  wireline  communication  ASICs
       for a number of reasons.

   71) Firstly, the presence of Avago is not very strong, with a market share of [20-30]% and the addition of Broadcom's  [0-5]%  hardly  changes
       the competitive landscape. Secondly, the market is fragmented with an HHI of [1,500-1,550] post-Transaction and a delta brought  about  by
       the Transaction of [50-100]. Thirdly, there are, according to the Notifying Party, strong competitors such as GlobalFoundries/IBM,  Huawei
       (via HiSilicon) and STMicroelectronics, which will subject the merged entity to competitive constraints.  Fourthly,  when  developing  new
       ASICs switching costs are minimal and there are no capacity constraints for competitors to increase their productions. Fifthly, customers,
       which are typically well-established and large companies such as […],[…],[…],[…] and […], would have a significant degree of buyer power.

   72) Moreover, the Notifying Party submits that Avago and Broadcom are not close competitors in this market.

   73) The Notifying Party further claims that, on top  of  the  arguments  presented  for  the  broader  wireline  communication  ASICs  market,
       specifically in the potential market for Ethernet switch ASICs, the presence of strong competitors such as GlobalFoundries/IBM  and  Texas
       Instruments with higher or comparable market shares to the merged entity, poses significant competitive constraints.

2 Results of the market investigation and Commission's assessment

   74) On the basis of the results of the market investigation and the information provided by the Notifying Party, the Commission considers that
       the Transaction does not raise serious doubts as to its compatibility with the internal market as  regards  wireline  communication  ASICs
       including the potential market for Ethernet switch ASICs for several reasons.

   75) First of all, the Parties do not hold a significant combined market share. Moreover, the market share increment that would arise from  the
       Transaction is minimal ([0-5]% for wireline communication ASICs and [0-5]% for Ethernet switch ASICs). In  addition,  respondents  to  the
       market investigation indicated that there will be a sufficient number  of  suppliers  post-Transaction.[32]  The  results  of  the  market
       investigation also indicated that Broadcom is not a significant player in this market.[33]

   76) In light of the above and of the fact that market participants expressed no concerns in relation to  the  impact  of  the  Transaction  on
       wireline communication ASICs, the Commission considers that the Transaction does not raise serious doubts as to its compatibility with the
       internal market in relation to the market for wireline communication ASICs including the potential market for Ethernet switch ASICs.

2 Wireline communication ASSPs

   77) The Parties' activities overlap and give rise to an affected market in wireline communication ASSPs.

|Company                             |Market share % (in value calculated on|
|                                    |2014 revenues)                        |
|Broadcom                            |[30-40]%                              |
|Avago                               |[0-5]%                                |
|Combined                            |[40-50]%                              |
|Marvell                             |[5-10]%                               |
|Intel                               |[5-10]%                               |
|Texas Instruments                   |[5-10]%                               |
|Lantiq                              |[5-10]%                               |
|Realtek Semiconductor               |[0-5]%                                |
|Silicon Laboratories                |[0-5]%                                |
|Qualcomm                            |[0-5]%                                |
|Cavium                              |[0-5]%                                |
|Others                              |[20-30]%                              |

                              Table 3- Market shares for wireline communication ASSPs (Source: Annex 18 to Form CO)

1 Notifying Party's view

   78) The Notifying Party submits that the Transaction would not raise any competition concern in the market for  wireline  communication  ASSPs
       for a number of reasons.

   79) Firstly, the presence of Avago is negligible with a market share of [0-5]%. Secondly, the market is fragmented  with  an  HHI  of  [1,850-
       1,900] post-Transaction and a delta brought about by the Transaction of [50-100]. Thirdly, there are, according to  the  Notifying  Party,
       strong competitors such as Intel, Qualcomm and Texas Instruments but also specialized wireline ASSP vendors such as Marvell,  Realtek  and
       Cavium which will subject the merged entity to competitive constraints. Fourthly, the Notifying Party  claims  that  switching  costs  are
       minimal for the customers and that there are no capacity constraints for competitors to increase their  productions.  Fifthly,  customers,
       which are typically well-established and large companies such as […],[…],[…] and […] would have a significant degree of buyer power.

   80) Moreover the Notifying Party also submits that Avago and Broadcom are not close competitors in this market.

   81) The Notifying Party submits also that coordinated effects can also be excluded given the fragmented structure of the market and  the  lack
       of transparency as prices are often negotiated bilaterally under tendering procedures.

2 Results of the market investigation and Commission's assessment

   82) On the basis of the results of the market investigation and the information provided by the Notifying Party, the Commission considers that
       the Transaction does not raise serious doubts as to its compatibility with the internal market as regards wireline communication ASSPs.

   83) First of all, the increment brought about by the Transaction is very limited.  Moreover,  the  respondents  to  the  market  investigation
       indicated that there will be a sufficient number of suppliers post-Transaction.[34] The results of the market investigation  also  support
       the view that Avago is not a significant player as regards wireline communication ASSPs.

   84) In light of the above and of the fact that market participants expressed no concerns in relation to the impact of the Transaction on  this
       market, the Commission considers that the Transaction does not raise serious doubts as to its compatibility with the  internal  market  in
       relation to the market for wireline communication ASSPs.

2 Vertical relationships

   85) As explained in paragraph (67), Avago, apart from including SerDes in its own ASICs, is also active in the licensing of SerDes IP to third
       parties. Namely, it licenses SerDes IP to […] IC vendors[35] that use it to produce  wireline  communication  ASSPs  in  competition  with
       Broadcom. These agreements are as follows: [Agreements with Broadcom competitors on licensing 25G/50G SerDes].

   86) Currently Avago has a clear incentive to license SerDes IP to ASSPs manufacturers as it is  not  producing  own  ASSPs.  Post-Transaction,
       however, this incentive may change as the merged entity will become the competitor of  Avago's  current  licensees.  The  question  arises
       therefore whether the Transaction creates the risk that Avago will foreclose its future  competitors  by  withdrawing  this  input  (input
       foreclosure).

1 Ability to foreclose

1 Notifying Party's view

   87) The Notifying Party submits that Avago will not have the ability to engage in an input foreclosure strategy. While exact market shares  in
       SerDes IP licensing are not available, the Notifying  Party  estimates  the  market  for  interface  IP  in  both  wireline  and  wireless
       communication ICs, which includes SerDes IP, to be worth approximately USD 500-600 million  in  2014.  Avago's  revenues  from  SerDes  IP
       licensing amounted to USD [10-15] million in the last four quarters, which would correspond to [0-5]%[36] of this IP licensing  market  if
       the lower end of the range is used to calculate the market share.

   88) In addition, there are, according to the Notifying Party, a number of licensors of SerDes IP at all speeds.

   89) 1G and 10G SerDes technology is mature, widely available and the majority of  the  production  market  is  based  on  these  technologies.
       Licensors would include Cadence, Synopsys, Semtech, Inphi, Credo, STMicroelectronics, ClariPHY and GlobalFoundries/IBM.

   90) The current SerDes technology is 25G. Chips with this technology will go in production in about a year. According to the Notifying  Party,
       this technology can be sourced from Mellanox, Cadence, ClariPHY, Credo,  Intel,  Open  Silicon,  Semtech,  Inphi,  STMicroelectronics  and
       GlobalFoundries/IBM. Some of these players are licensing this technology to third parties, and all of them  would  have  the  ability  and
       incentive to license their solutions to third parties in case prices for SerDes technology at the 25G standard were to increase.

   91) The next generation of SerDes will be based on the 50G SerDes technology. This technology itself is still in development and  chips  based
       on this technology are expected to go in production in about three years. While Avago […] SerDes 50G IP, the Notifying Party  claims  that
       several other companies […] 50G SerDes IP as well. The Notifying Party expects Intel to launch its 50G SerDes product in the course of the
       year of this decision, and claims that Credo has demonstrated a 50G product. Inphi has recently  announced  availability  of  40G/50G/100G
       solutions and ClariPHY also has a 50G SerDes product.

   92) As regards a future SerDes IP with speeds of 100G and more, the Notifying Party  claims  that  all  the  firms  mentioned  previously  are
       investing to develop their own 100G technology. There are strong indications that as for the currently available technologies, competition
       will be lively.

   93) The Notifying Party furthermore points out that the existing Avago licensees are protected under long-term licensing agreements,  [Details
       about confidential license agreements].

   94) Lastly, the Notifying Party submits that it is possible to replace higher speed SerDes with more than one lower speed SerDes  (e.g.  reach
       the 50G speed by using two 25G SerDes), which means that any speed can be achieved with the widely available lower speed SerDes.

2 Results of the market investigation and Commission's assessment

   95) The Commission recalls, first, that as mentioned in paragraph (60) the majority of respondents to the market investigation indicated  that
       the market for SerDes IP should be further segmented for each standard speed (1G, 10G, 25G, 50G and the future 100G).[37]

   96) Several market participants considered that high speed SerDes (25G and above) are critical in areas where high amounts of data need to  be
       handled with high speed, such as networking equipment in data centers.[38] An OEM that uses chips with high speed SerDes noted that due to
       the limited physical space available in the device to place components it is not possible to replace higher speed SerDes  with  two  lower
       speed SerDes.[39] Numerous market participants explained that it is very challenging to design good  quality  high  speed  SerDes  because
       higher speeds need to be achieved without compromising on signal quality, power consumption, size and reach (i.e. how  far  the  data  can
       travel).[40] This also strongly suggests that two 10G SerDes would not substitute a 25G SerDes as such a configuration would increase  the
       space and power consumption of the IC, both of which appear to be important criteria in the eyes of customers.

   97) Consequently, even though the market investigation supported the Notifying Party's view that lower speed SerDes is available from multiple
       sources[41], this fact cannot dispel concerns relating to higher speed SerDes.

   98) With regard to high speed SerDes (25G and above), the Commission notes that such SerDes appear to be critical for high  performing  chips.
       Almost all market participants agreed that SerDes is a critical function of a chip[42], especially in light of the current trend  to  move
       to higher speeds in network equipment and data center applications.[43] Market participants agreed that if the SerDes is slow, error prone
       (too much noise or "jitter" in the data transmission), consumes too much power, does not have enough reach (does not  send  the  data  far
       enough), or takes up too much space, then the same will be true for the chip that incorporates it.[44] Consequently in  areas  where  high
       performing chips are required (such as network equipment, data centers) high speed and high quality SerDes appear to be a must have.

   99) Not only high speed SerDes are critical, but once a certain SerDes is chosen for a new chip design,  the  chip  vendor  cannot  switch  to
       another SerDes without redesigning the whole chip, which would involve losing  years  of  development  work  and  substantial  development
       costs.[45] Choosing a SerDes is, therefore, a critical business decision and the chip vendor is locked in with the chosen SerDes  for  the
       lifecycle of the chip, including its upgrades and newer generation variants.

  100) All market participants agreed that designing a high performing high speed SerDes is extremely challenging[46] even by  the  standards  of
       the high-tech world of the semiconductor industry. Multiple sources estimate that developing a high speed SerDes requires several years of
       development work as well as significant human and financial resources.[47] A supplier of  SerDes  IP  held  that  there  are  only  a  few
       engineers in the world who have a good understanding of the mathematics involved.[48]

  101) Such advanced technology that is at the same time critical to the performance of the final product is  unlikely,  by  its  nature,  to  be
       widely available. In addition, given the important business implications in choosing a SerDes technology, chip vendors who have a  trusted
       solution are unlikely to switch easily to alternative suppliers.

  102) Indeed, when it comes to high speed SerDes, the market investigation did not confirm the Notifying  Party's  view.  A  large  majority  of
       market participants agreed that Avago is the clear leader in SerDes technology and has the best  and  most  advanced  SerDes.[49]  Several
       market participants that use Avago's high speed SerDes reported that currently there is no alternative on the market that would meet their
       technical requirements.[50] A licensor of SerDes IP submitted  that  in  high  speed  SerDes  Avago  is  superior  and  the  other  SerDes
       technologies are generally behind.[51]

  103) More specifically, with regard to the sources the Notifying Party mentions, the SerDes of Credo, a start-up, and Inphi  were  regarded  as
       having potential but not yet accepted in the market[52] Intel was viewed as being in the  process  of  catching  up  with  the  market  in
       SerDes.[53] Cadence and Synopsis are focused on lower speed SerDes.[54] STMicroelectronics and Mellanox do not license  out  their  SerDes
       (but only use it for their own ASICs).[55] Open Silicon, ClariPHY and Semtech were not mentioned as potential alternatives by  any  market
       participant for high speed SerDes.[56] Globalfoundries/IBM was regarded as one of the best by  an  IC  vendor[57];  however  other  market
       participants regarded it as inferior to Avago.[58]

  104) Several market participants noted that reputation is an important element in SerDes licensing in a sense that a  leading  SerDes  supplier
       would have an edge even against a technically equivalent solution.[59] As explained above, the choice of SerDes  is  a  critical  business
       decision: chip vendors are likely to be reluctant in switching away from a trusted source with a reputation of being a market  leader.  It
       is therefore likely that Avago's SerDes is critical for the licensees and that there is a lack of suitable alternatives.

  105) On the other hand, a few respondents to the Commission's questionnaire considered that there is sufficient choice in SerDes licensing.[60]
       Furthermore, an OEM submitted that SerDes other than Avago's also comply with its performance criteria for ASSPs.[61] However,  even  this
       OEM considered that Avago clearly has the best SerDes.

  106) Taking into account all replies, the  Commission  therefore  considers  that  the  withdrawal  of  Avago's  SerDes  license  could  create
       difficulties in the downstream competition in wireline communications ASSPs.

  107) The Commission notes that several firms are developing high speed SerDes. A number of market participants noted that the tendency of  data
       centre and network applications to move to higher speeds, coupled with the lack of adequate alternatives in high quality SerDes, create  a
       market opportunity for developing such SerDes, which several firms are trying to capture.[62] While the existence of such development work
       does not mean that at present there are sufficient credible alternatives to Avago's SerDes IP, the Commission will  take  this  fact  into
       account in the overall assessment of this concern.

  108) With regard to […]. Therefore, contrary to the Notifying Party's view,  not  all  licensees  are  protected  by  the  current  contractual
       arrangements.

  109) In view of the above the Commission considers that post-Transaction Avago will have the  ability  to  engage  in  input  foreclosure.  The
       Commission notes at the same time that several firms are developing high speed SerDes in an attempt to catch up with Avago.

2 Incentive to foreclose

1 Notifying Party's view

  110) […] It did so because it represented an incremental, highly profitable revenue stream for Avago’s ASIC Product Division (“APD”). According
       to the Notifying Party, Avago has a natural and strong incentive to continue capturing that revenue going forward.

  111) The Notifying Party also submits that Avago’s reputation as a reliable and credible development partner in the ASIC area would  be  harmed
       in the longer term from an attempt to force the merged entity’s ASSP solution on unwilling OEM customers  as  a  condition  of  access  to
       Avago’s SerDes IP. This would potentially impose even more significant harm on Avago via the effects on its  existing  ASIC  business  and
       would further reduce or negate any potential incentive to attempt a foreclosure strategy.

2 Results of the market investigation and Commission's assessment

  112) As the Notifying Party explained, Avago's revenues from SerDes IP licensing amount to approximately USD [10-15] million per year.[63]

  113) On the other hand, the chips that the licensees build with Avago's SerDes are Ethernet switch  chips.[64]  Broadcom's  revenues  from  the
       sales of Ethernet switch chips amounted to USD [1-1.5] billion in 2014.[65]

  114) Given that on the level of the merged entity the revenues that can be threatened by Broadcom's current competitors are  much  larger  than
       the revenues from all of Avago’s SerDes licensing, the Commission considers that post-Transaction Avago may have an incentive to  use  the
       leverage it has in SerDes IP.

3 Overall likely impact on effective competition

1 Notifying Party's view

  115) The Notifying Party does not elaborate on the likely market impact of this particular input foreclosure concern.

2 Results of the market investigation and Commission's assessment

  116) As the table below[66] shows, the potential market of Ethernet switch ASSPs is highly concentrated and Broadcom has a very strong position
       with [70-80]% market share. Marvell is Broadcom's largest competitor with [10-20]%.

|Company                                 |Sales 2014 (mUS$)                         |Share 2014                  |
|Broadcom                                |[…]                                       |~[70-80]%                   |
|Marvell                                 |[…]                                       |~[10-20]%                   |
|Others                                  |[…]                                       |[10-20]%                    |
|Total segment                           |~[…]                                      |100%                        |

                                 Table 4 - Market shares for Ethernet switch ASSPs (Source: Annex 18 to Form CO)

  117) As the market for such switches is already concentrated and Broadcom is a very strong player on this market, a possible input  foreclosure
       conduct by Avago post-Transaction could lead to anti-competitive effects on this market, especially in light of the fact that one  of  the
       licensees of Avago’s 25G and 50 G SerDes is [Information regarding confidential  license  agreement],  Broadcom’s  [Information  regarding
       confidential license agreement] competitor on this market.

3 Overall conclusion on the vertical concern linked to SerDes IP licensing

  118) Based on the above, and contrary to the Notifying Party's view, following the results of the phase I market investigation, the  Commission
       considered that the Transaction raised a concern as regards its compatibility with the internal market in  respect  of  the  licensing  of
       Avago’s 25G and 50G SerDes IP.

4 Commitment offered

  119) On 30 October 2015 Avago offered remedies in response to the Commission's concern.

  120) Under the proposed remedies, Avago commits to make a firm, irrevocable and legally binding offer to extend the duration  of  [Confidential
       details on Avago’s offered remedy] licensing agreements currently in place with [Confidential details on Avago’s offered remedy].

  121) Avago also committed [Confidential details on Avago’s offered remedy]. The scope of the license includes [Confidential details on  Avago’s
       offered remedy].

5 Agreements entered into after the notification of the Transaction

  122) Parallel to offering these remedies, Avago also attempted to address the Commission's competition concerns  by  entering  into  agreements
       with certain licensees of its SerDes IP.

  123) On 2 November 2015, the Notifying Party submitted that it reached an agreement with [Licensee] in  Ethernet  switch  ASSPs.  Specifically,
       Avago granted [Licensee] the option of extending the duration of the existing licensing  agreement  [Details  about  confidential  license
       agreement]. Avago and [Licensee] also concluded a  new  licensing  agreement  on  the  56G  SerDes  [Details  about  confidential  license
       agreement].

  124) On 9 November 2015, the Notifying Party submitted that it entered into a legally binding  arrangement  with  [Licensees],  [Details  about
       confidential license agreement]. Specifically, Avago agreed to extend the duration of the existing licenses  [Details  about  confidential
       license agreement]. This provision is meant to ensure that [Licensees] will not be restricted in their  ability  to  compete  in  Ethernet
       switch ASSPs [Details about confidential license agreement]. Further, Avago committed to negotiate and execute with [Licensees] a  license
       agreement on the new generation 56G SerDes. [Details about confidential license agreement].

  125) Avago acknowledged that [Licensees] rely on Avago's commitment in their development  plans  and  that,  if  Avago  failed  to  fulfil  its
       obligation, such failure would likely have detrimental effect on [Licensees] businesses. The Notifying Party [Details  about  confidential
       license agreement] undertakings vis-à-vis [Licensees] became legally binding.

6  The Commission's assessment

  126) The agreement Avago concluded with [Licensee] protects [Licensee] in ASSP Ethernet switch chips, against a  foreclosure  strategy  in  the
       medium term. [Details about confidential license agreement]. More importantly, [Licensee] will have the ability  to  compete  in  Ethernet
       switch ASSPs in the medium term as it will be able to use Avago's SerDes in its new generation chips. The contract duration was [Licensee]
       preference, which further supports the Commission's view that the arrangement allows [Licensee] to  compete  effectively.  [Details  about
       confidential license agreement].In other words, the merged entity will not be able to engage in a foreclosure strategy […].

  127) Moreover, the agreement allows [Licensee] to [Details about confidential license agreement].  The  consideration  payable  [Details  about
       confidential license agreement] can be regarded as a true market rate. The slightly higher rate reflects  the  fact  that  [Details  about
       confidential license agreement] it will have access to the most modern technology.

  128) [Licensees] will also be able to continue producing their current chips [Details about confidential license agreement]. The agreement that
       Avago committed to execute on 50 G SerDes [Details about confidential license agreement] guaranteeing [Licensees] ability  to  compete  in
       newer generation Ethernet switch ASSPs. Importantly, Avago's commitment [Details about confidential license agreement].

  129) The license agreements and arrangements do not cover [Licensee]. However, [Licensee] is not yet present today on the Ethernet switch  ASSP
       market. Moreover, as it will take some time for [Licensee] to enter the market and then to develop a  new  ASSP  Ethernet  switch,  it  is
       plausible that other licensors of high quality SerDes IP will by  that  time  have  developed  credible  alternatives  to  Avago's  SerDes
       technology.

  130) Accordingly, the agreements and arrangements Avago entered into address the Commission's  initial  competition  concern.  Taking  the  new
       agreements and arrangements into account, the Commission considers that Avago no longer has the ability to distort competition in Ethernet
       switch ASSPs. The Commission also considers therefore that the remedies offered by Avago are not necessary  to  address  the  Commission's
       initial input foreclosure concern.

3 Conglomerate relationships

  131) The Transaction gives rise to a conglomerate relationship between the Parties’ activities in two  areas,  namely  ICs  that  are  used  in
       wireless applications (mobile phones and tablets) and in the so-called data center stack.

  132) With regard to wireless communication ICs, the Parties offer ICs and devices for wireless communications devices that are purchased by the
       same customers for the same end use. Broadcom’s wireless division produces connectivity chips for, e.g., WiFi,  GPS  or  Bluetooth,  while
       Avago’s Wireless Semiconductor Division produces Radio Frequency ("RF") semiconductor devices. However,  as  the  Commission  received  no
       feedback specifically on wireless ICs in its market investigation, it will focus on the data center stack.

  133) The notion of data center stack is based on the concept of IT stack that the Commission used in the past to  refer  to  the  hardware  and
       software components necessary for companies to ultimately use their business software applications.[67] An IT stack includes the following
       layers: (i) physical infrastructure products, including, for instance, servers,  storage  units,  client  PCs  and  networking  equipment,
       constituting the first layer, (ii) operating systems, (iii) databases, (iv) middleware, and (v) enterprise application software (EAS).[68]
       Accordingly, data center stack refers to the set of hardware and software components used in data centers. Within the  data  center  stack
       the Parties are only active in hardware components (the first layer of a hypothetical data center “IT stack”). The hardware layer  of  the
       data center stack can be further subdivided into storage, compute (server) and  networking  sublayers.  Both  Parties  offer  a  range  of
       products that are used in the hardware layer of the data center IT stack.

1 Notifying Party's view

  134) As regards the hardware components within the storage sublayer of data centers, the Notifying Party claims  that  Broadcom  is  […]  as  a
       result the Transaction will not bring about any change of suppliers within such sublayer.

  135) The Notifying Party further submits that Avago is only marginally active in the computing sublayer providing computing ASICs and ASSPs for
       data center applications. Avago has [sales of […] EUR] in the EEA in this sublayer. Broadcom […] in the data center stack […]. Transaction
       will not, therefore, bring about any change in this sublayer.

  136) According to the Notifying Party, both Broadcom and Avago are active in the networking infrastructure sublayer.

  137) Namely, Avago provides wireline communication ASICs for networking equipment including Ethernet switches, in  particular  Ethernet  switch
       ASICs, wireline communications ASSPs (Ethernet controllers) as well as optical products (“Optics”)[69]  for  data  center  infrastructure.
       Avago’s switch ASICs and Optics are generally found in Ethernet switches  while  Avago’s  Ethernet  controllers  are  generally  found  in
       servers.

  138) Broadcom, on the other hand, provides wireline communications ASSPs, in particular Ethernet controllers,  which  are  generally  found  in
       servers, and Ethernet switch and PHY ASSPs, which are generally found in Ethernet switches. To a much more  limited  extent,  Broadcom  is
       also active in wireline communication ASICs, in particular Ethernet switch ASICs and PHY ASICs, which are found in networking equipment.

  139) In the Notifying Party's view, the merged entity does not have the ability to profitably bundle the Parties'  respective  products  within
       the networking sublayer. Avago’s offer focuses on ASICs, whereas Broadcom specializes in ASSPs. ASICs  and  ASSPs  follow  very  different
       product cycles, and reflect different fundamental choices by the OEM to build a customized IC or rely on an off-the-shelf product.

  140) The Notifying Party submits that tying and bundling would  not  be  feasible  or  practicable  across  sublayers  either.  Technology  and
       procurement for the data center compute sublayer is driven by Intel and its product roadmap for processors. The  Notifying  Party  further
       submits that OEMs have to follow Intel given that it is the de facto prevailing technological solution. The typical product cycle  in  the
       compute sub layer is approximately 2 years, is driven by Intel’s innovations and the product cycle in the storage sublayer tracks  closely
       that of the compute sublayer.

  141) In the view of the Notifying Party, the networking sublayer is, however, independent from the compute and storage sublayers as it requires
       different expertise and is run by different procurement teams. The Notifying Party argues that products in this sublayer follow  different
       product cycles than products in other sublayer and differ even within the sublayer. Optics are commodities, and new products are  launched
       every 6 months whereas product cycles for ASICs and ASSPs in the networking layer range from 18  months  to  3  years,  depending  on  the
       product. An IC producer would not delay product introductions in order to synchronize product cycles between layers because time-to-market
       is a key competitive parameter in ICs. The Notifying Party concludes that for these reasons, in areas where the Transaction brings about a
       change bundling and tying across sublayers would not be practicable.

2 Results of the market investigation and Commission's assessment

  142) As a preliminary remark the Commission notes that its assessment is restricted to potential exclusionary tying and bundling practices that
       could result from the Transaction. In the context of this Decision, the Commission cannot and does not take a view on  potential  bundling
       and tying practices within the existing product sets of Avago or Broadcom.

  143) In response to the Commission's questionnaire a number of market participants submitted that the Transaction could  increase  the  ability
       and incentive of the merged entity to tie and/or bundle some of its products, especially in light of the  Parties'  complementary  product
       portfolios.[70]

  144) These comments were not, however, substantiated as to the mechanics  and  the  likely  success  of  a  bundling  or  tying  strategy.  The
       investigation did not point to a specific product set and customer group in respect of  which  a  bundling  or  tying  strategy  could  be
       successfully applied.[71]

  145) In this regard, the Commission notes that, in line with the Non-Horizontal Merger Guidelines, the mere fact that the  merged  entity  will
       have a broader range of products is insufficient to conclude that the Transaction will significantly increase the risk  of  abusive  tying
       and bundling.[72]

  146) The Commission requested detailed data on the Parties’ respective sales and market shares within each sublayer of the  hardware  layer  of
       the data center stack.

  147) According to this data, in the computing (server) sublayer both Parties' presence is minimal[73] as Avago has a  [0-5]%  share  in  ASICs,
       less than [0-5]% in ASSPs, while Broadcom […] and has a [0-5]% share in ASSPs. Accordingly  the  risk  of  tying  and  bundling  could  be
       excluded within the computing (server) sublayer. In the storage sublayer Broadcom […][74], so the Transaction would have no effect  within
       this sublayer either.

  148) Both Parties are present, however, in the networking sublayer.

  149) Broadcom has a strong portfolio in the networking layer, with products such as Ethernet Switch ASSPs (a worldwide  market  share  of  [70-
       80]%), and PHY ASSPs (a worldwide market share of [60-70]%). Avago also has a presence in Ethernet Switch ASICs, where it holds a [20-30]%
       share on a worldwide basis. In addition, Avago competes in PHY ASICs, where it is holds a [20-30]% share on a worldwide basis. The Parties
       have a number of overlapping customers in the storage and the networking layer, such as [Confidential information on customers].

  150) In this sublayer therefore the potential risk of exclusionary tying and bundling needs to be further examined.

  151) In this regard, the Commission's market investigation results indicated that ASICs and ASSPs are treated separately within  the  OEMs.[75]
       ASICs and ASSPs have different characteristics in terms of size and technology, different design, need different know-how, have  different
       costs and are produced in different production lines.[76]

  152) ASICs are based on the cooperation between the ASIC vendor and the OEM and take several years to develop. Such development work, which  is
       tailored to the needs of the OEM, is costly and due to their custom nature ASICs benefit much less from economies of scale than ASSPs.  As
       a result, not all OEMs can afford to employ ASICs. The OEMs that can afford it embark on these costly ASIC projects to differentiate their
       products from those of their competitors.

  153) Due to the fundamental difference between and the separate treatment of ASICs and ASSPs, they are procured separately by OEMs.[77] Even if
       such separate procurement may not prevent tying and bundling between ASSP and ASIC products, it would make it considerably more  difficult
       for the merged entity to force such a strategy on its customers.

  154) Another element that might make tying and bundling more difficult is the fact that customers in this area are large technology  companies.
       [Confidential information on customers]. These customers made up [40-50]% of Avago's ASIC revenues and [20-30]% of Broadcom's revenues  in
       the networking sublayer in 2014. These customers are sophisticated market participants that will closely evaluate other  options  in  case
       the merged entity would try to impose tying or bundling upon them, including the possible option to start in-house production  of  certain
       chips or to support entry.[78]

  155) Furthermore, due to the distinct nature of ASICs and ASSPs, their development cycle is also different.[79] As time to market is  important
       for IC vendors, it would be impractical to delay the offer in either product type in an attempt to bundle them together. While this aspect
       also does not eliminate the risk of tying and bundling entirely (in principle the merged entity could tie or bundle  products  that  reach
       the market at different times) it does make the implementation of such practices more difficult.

  156) It is therefore unlikely that the Transaction would give rise to an increased risk of exclusionary tying  or  bundling  across  ASICs  and
       ASSPs. As the only bundling and tying possibilities that are specific to the Transaction arise from the combination of  ASSPs  and  ASICs,
       this means that it is unlikely that the Transaction would meaningfully increase the risk of tying and bundling in the networking sublayer.

  157) With regard to the potential risk of tying and bundling across (and not within) the different sublayers, the merger  specific  theoretical
       possibilities include i) leveraging either party's strong position in the networking sublayer to the markets in other sublayers where  the
       other party has a meaningful presence and ii) leveraging Avago's strong position in the storage sublayer  to  the  markets  in  the  other
       sublayers where Broadcom has a meaningful presence.

  158) Both Parties' presence in the computing sublayer is minimal (Avago has a [0-5]% share in compute ASICs and Broadcom has a [0-5]% share  on
       a worldwide basis in compute ASSPs) and some of the computing sublayer segments are dominated by Intel. Accordingly, bundling combinations
       involving the compute sublayer are very unlikely.

  159) It follows that both potential bundling and tying  possibilities  would  involve  combinations  across  the  networking  and  the  storage
       sublayers.

  160) In this regard the bundling possibilities are restricted to the customers with a presence in both sublayers. On the basis  of  information
       requested by the Commission, the most important customers that fit this description are [Confidential information  on  customers].[80]  As
       explained in paragraph (154), these are large and sophisticated customers.

  161) Further, storage and networking products require different expertise and thus are unlikely to be procured together at OEMs.  In  addition,
       even across sublayers most of the merger specific possible bundling possibilities involve the bundling of  ASICs  with  ASSPs,  which,  as
       explained in paragraphs (151) to (156) are unlikely to be bundled. In addition, the product cycle in the networking sublayer is  different
       with the storage sublayer as the product cycle in the storage sublayer follows closely the compute sublayer  and  is  decoupled  from  the
       networking sublayer. Thus differences in time-to-market make it unlikely that bundling and tying across these layers would be practicable.

  162) On the basis of the market investigation results and the other evidence available to it, the Commission therefore considers that tying and
       bundling across sublayers is unlikely and accordingly, the Transaction is unlikely to  lead  to  a  significant  impediment  of  effective
       competition.

       CONCLUSION

  163) For the above reasons, the Commission has decided not to oppose the notified operation and to declare  it  compatible  with  the  internal
       market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the Merger Regulation and Article  57  of
       the EEA Agreement.

For the Commission                                        (Signed)                                                  Margrethe VESTAGER
Member of the Commission

-----------------------
[1]   OJ L 24, 29.1.2004, p. 1 ('the Merger Regulation'). With effect from 1 December 2009, the Treaty on the Functioning of the  European  Union
('TFEU') has introduced certain changes, such as the replacement of 'Community'  by  'Union'  and  'common  market'  by  'internal  market'.  The
terminology of the TFEU will be used throughout this decision.

[2]   OJ L 1, 3.1.1994, p. 3 ("the EEA Agreement").

[3]   Publication in the Official Journal of the European Union No C 336, 10.10.2015, p. 2.

[4]   Turnover calculated in accordance with Article 5 of the Merger Regulation and the Commission Consolidated Jurisdictional Notice (OJ  C  95,
16.4.2008, p. 1).

[5]   Commission decision of 17 September 2015 in Case M.7585 - NXP Semiconductors / Freescale Semiconductor, para. 14.

[6]   They may, for instance, repeat and strengthen the signal, which may have deteriorated due to distance (so-called “channel loss”),  equalize
it, convert it between analogue and digital form, serialize or de-serialize it, increase or reduce its speed, or reduce the  deviation  from  its
original frequency (so-called “jitter”).

[7]   For more details on data center stacks, see paragraph (133).

[8]   As mentioned in paragraph (69), other than Ethernet switch ASICs, the Transaction would not give rise  to  an  affected  market  under  any
narrower market definition within the broader market for wireline communication ASICs.

[9]   The Commission notes that, in relation to another type of ASSPs, namely PHY ASSPs, the Parties’ activities used to overlap  until  November
2014, when Avago discontinued its activities. Therefore there is no longer any overlap between the Parties’ activities in relation to PHYs  ASSPs
while minor overlaps still exists in the broader market for wireline communication ASSPs, see Section 5.1.2.

[10]  IP blocks are designs which perform a specific function, for instance computation, memory access and SerDes. Such blocks can  be  developed
in-house or licensed and the IC vendors will assemble several blocks in order to have the final design of their ICs.

[11]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 6; replies to Commission questionnaire  to  customers
Q2 of 5 October 2015, question 6.

[12]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, questions 5 and 5.1; replies to  Commission  questionnaire  to
customers Q2 of 5 October 2015, question 5.

[13]  Replies to Commission questionnaire to customers Q2 of 5 October 2015, question 5.

[14]  Replies to Commission questionnaire to customers Q2 of 5 October 2015, question 10.

[15]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 10; replies to Commission questionnaire to  customers
Q2 of 5 October 2015, question 10.

[16]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, questions 7.1 and 7.1.1; replies to  Commission  questionnaire
to customers Q2 of 5 October 2015, questions 7.1 and 7.1.1.

[17]  Commission decision of 24 June 2002 in Case M.2820 - STMicroelectronics/AlcatelMicroelectronics; Commission decision  of  3  July  2001  in
Case M.2439 - Hitachi/STMicroelectronics/SuperH JV; Commission decision of 10 August 2007 in Case M.4751- STM/Intel/JV;  Commission  decision  of
27 June 2008 in Case M. 5173 - STM/NXP/JV; Commission decision of 25 November 2008 in Case M. 5332 - Ericson/STM/JV; and Commission  decision  of
2 December 2009 in Case M.5535 - Renesas Technology/NEC Electronics.

[18]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 13; replies to Commission questionnaire to  customers
Q2 of 5 October 2015, questions 13.

[19]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 6; replies to Commission questionnaire  to  customers
Q2 of 5 October 2015, question 6.

[20]  See paragraph (32).

[21]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, questions 7.1 and 7.1.1; replies to  Commission  questionnaire
to customers Q2 of 5 October 2015, questions 7.1 and 7.1.1.

[22]  Commission decision of 24 June 2002 in Case M.2820 - STMicroelectronics/AlcatelMicroelectronics; Commission decision  of  3  July  2001  in
Case M.2439 - Hitachi/STMicroelectronics/SuperH JV; Commission decision of 10 August 2007 in Case M.4751 - STM/Intel/JV; Commission  decision  of
27 June 2008 in Case M. 5173 - STM/NXP/JV; Commission decision of 25 November 2008 in Case M. 5332 - Ericson/STM/JV; and Commission  decision  of
2 December 2009 in Case M.5535 - Renesas Technology/NEC Electronics.

[23]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 13; replies to Commission questionnaire to  customers
Q2 of 5 October 2015, questions 13.

[24]  "G" stands for gigabit per second.

[25]  See replies to RFI 4 question 2.

[26]  See replies to RFI 4 question 2.

[27]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, questions 11 and 11.1; replies to Commission questionnaire  to
customers Q2 of 5 October 2015, questions 11 and 11.1.

[28]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 12; replies to Commission questionnaire to  customers
Q2 of 5 October 2015, questions 12.

[29]  See for instance the non-confidential minutes of a conference call with a competitor dated 6 November 2015 at 12.00 CET.

[30]  Commission decision of 24 June 2002 in Case M.2820 - STMicroelectronics/AlcatelMicroelectronics; Commission decision  of  3  July  2001  in
Case M.2439 - Hitachi/STMicroelectronics/SuperH JV; Commission decision of 10 August 2007 in Case M.4751- STM/Intel/JV;  Commission  decision  of
27 June 2008 in Case M. 5173 - STM/NXP/JV; Commission decision of 25 November 2008 in Case M. 5332 - Ericson/STM/JV; and Commission  decision  of
2 December 2009 in Case M.5535 - Renesas Technology/NEC Electronics.

[31]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 13; replies to Commission questionnaire to  customers
Q2 of 5 October 2015, questions 13.

[32]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 18; replies to Commission questionnaire to  customers
Q2 of 5 October 2015, question 18.

[33]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 14; replies to Commission questionnaire to  customers
Q2 of 5 October 2015, question 14.

[34]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 18; replies to Commission questionnaire to  customers
Q2 of 5 October 2015, question 18.

[35]  […].

[36]  Form CO paragraph 193.

[37]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 12; replies to Commission questionnaire to  customers
Q2 of 5 October 2015, questions 12.

[38]  See for instance the non-confidential minutes of a conference call with a  competitor  dated  28  October  2015  at  16.30  CET,  the  non-
confidential minutes of a conference call with a customer dated 29 October 2015 at 17.00 CET, the non-confidential minutes of a  conference  call
with a competitor dated 26 October 2015 at 17.00 CET.

[39]  See the non-confidential minutes of a conference call with a market participant dated 14 October 2015 at 18.00 CET.

[40]  See for instance the replies to Commission questionnaire to customers Q2 of 5 October  2015,  question  24.1,  24.3,  the  non-confidential
minutes of a conference call with a competitor dated 6 November 2015 at 12.00 CET, the non-confidential minutes  of  a  conference  call  with  a
competitor dated 28 October 2015 at 16.30 CET, the non-confidential minutes of a conference call with a  competitor  dated  26  October  2015  at
17.00 CET, the non-confidential minutes of a conference call with a customer dated 29 October 2015 at 17.00 CET.

[41]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 24, replies to Commission questionnaire to  customers
Q2 of 5 October 2015, question 25.

[42]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question  23,  the  replies  to  Commission  questionnaire  to
customers Q2 of 5 October 2015, question 24 and 24.3, the non-confidential minutes of a conference call with a customer dated 29 October 2015  at
17.00 CET, the non-confidential minutes of a conference call with a customer dated 6 November 2015 at 18.00 CET.

[43]  See the non-confidential minutes of a conference call with a customer dated 29 October 2015 at 17.00 CET, the non-confidential  minutes  of
a conference call with a competitor dated 26 October 2015 at 17.00 CET.

[44]  See for instance the non-confidential minutes of a conference call with a  competitor  dated  28  October  2015  at  16.30  CET,  the  non-
confidential minutes of a conference call with a customer dated 29 October 2015 at 17.00 CET. the non-confidential minutes of a  conference  call
with a competitor dated 26 October 2015 at 17.00 CET.

[45]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, questions 26 and 26.1, replies to Commission questionnaire  to
customers Q2 of 5 October 2015, questions 27 and 27.1, the non-confidential minutes of a conference call  with  a  market  participant  dated  14
October 2015 at 18.00 CET, the non-confidential minutes of a conference call with a customer dated 29 October 2015 at 17.00 CET.

[46]  See for instance the non-confidential minutes of a conference call with  a  competitor  dated  4 November  2015  at  18.00  CET,  the  non-
confidential minutes of a conference call with a competitor dated 6 November 2015 at 12.00 CET, the  non-confidential  minutes  of  a  conference
call with a competitor dated 26 October 2015 at 17.00 CET, the non-confidential minutes of a conference call with a competitor dated  28  October
2015 at 16.30 CET, replies to Commission questionnaire to customers Q2 of 5 October 2015, question 24.3.

[47]  the non-confidential minutes of a conference call with a customer dated 6 November 2015 at 18.00 CET, the  non-confidential  minutes  of  a
conference call with a customer dated 5 November 2015 at 16.15 CET, the non-confidential minutes of a conference call  with  a  competitor  dated
4 November 2015 at 18.00 CET.

[48]  See the non-confidential minutes of a conference call with a competitor dated 28 October 2015 at 16.30 CET.

[49]  See for instance the non-confidential minutes of a conference call with a  competitor  dated  28  October  2015  at  16.30  CET;  the  non-
confidential minutes of a conference call with a customer dated 6 November 2015 at 18.00 CET; the non-confidential minutes of a  conference  call
with a customer dated 5 November 2015 at 16.15 CET, the non-confidential minutes of a conference call with a market participant dated 14  October
2015 at 18.00 CET, the non-confidential minutes of a conference call with a competitor dated 4 November 2015 at 18.00 CET,  the  non-confidential
minutes of a conference call with a customer dated 29 October 2015 at 17.00 CET. Even those market participants that  did  not  consider  Avago's
SerDes as the best referred to it as one of the best out of the top two.

[50]  See the non-confidential minutes of a conference call with a market participant dated 14 October 2015 at 18.00  CET;  the  non-confidential
minutes of a conference call with a customer dated 6 November 2015 at 18.00 CET; reply of a market participant  to  Commission  questionnaire  to
customers Q2 of 5 October, question 24.2.

[51]  See for instance the non-confidential minutes of a conference call with a competitor dated 28 October 2015 at 16.30 CET.

[52]  See the non-confidential minutes of a conference call with a customer dated 6 November 2015 at 18.00 CET, the non-confidential  minutes  of
a conference call with a customer dated 5 November 2015 at 16.15 CET,the non-confidential minutes of a conference call with  a  competitor  dated
28 October 2015 at 16.30 CET.

[53]  See for instance the non-confidential minutes of a conference call with a competitor dated 9 November 2015 at 16.00 CET.

[54]  See for instance the non-confidential minutes of a conference call with a  competitor  dated  28  October  2015  at  16.30  CET,  the  non-
confidential minutes of a conference call with a competitor dated 9 November 2015 at 16.00 CET, the  non-confidential  minutes  of  a  conference
call with a competitor dated 6 November 2015 at 12.00 CET.

[55]  See the non-confidential minutes of a conference call with a competitor dated 6 November 2015 at 12.00 CET,  the  non-confidential  minutes
of a conference call with a competitor dated 28 October 2015 at 18.00 CET.

[56]  See the non-confidential minutes of a conference call with a customer dated 6 November 2015 at 18.00 CET, the non-confidential  minutes  of
a conference call with a competitor dated 28 October 2015 at 16.30 CET, the non-confidential minutes of a conference call with a  customer  dated
5 November 2015 at 16.15 CET, the non-confidential minutes of a conference call with a competitor dated 6 November 2015 at 12.00  CET,  the  non-
confidential minutes of a conference call with a competitor dated 4 November 2015 at 18.00 CET, the  non-confidential  minutes  of  a  conference
call with a competitor dated 9 November 2015 at 16.00 CET, the non-confidential minutes of a conference call with a market participant  dated  14
October 2015 at 18.00 CET, the non-confidential minutes of a conference call with a customer dated 29 October 2015 at 17.00 CET.

[57]  See the non-confidential minutes of a conference call with a competitor dated 6 November 2015 at 12.00 CET.

[58]  See for instance the non-confidential minutes of a conference call with a  competitor  dated  28  October  2015  at  16.30  CET,  the  non-
confidential minutes of a conference call with a competitor dated 26 October 2015 at 17.00 CET, the  non-confidential  minutes  of  a  conference
call with a customer dated 29 October 2015 at 17.00 CET.

[59]  See for instance the non-confidential minutes of a conference call with a customer dated 29 October 2015 at 17.00 CET.

[60]  Replies to Commission questionnaire to customers Q2 of 5 October 2015, questions 24.2 and 28.

[61]  See the non-confidential minutes of a conference call with a customer dated 5 November 2015 at 16.15 CET.

[62]  See for instance the non-confidential minutes of a conference call with a competitor dated 28 October 2015  at  16.30  CET,  See  the  non-
confidential minutes of a conference call with a customer dated 26 October 2015 at 17.00 CET.

[63]  See paragraph (87).

[64]  See Form CO, paragraph 115, 151 and 172, the non-confidential minutes of a conference call with a customer dated 6 November 2015  at  18.00
CET the non-confidential minutes of a conference call with a customer dated 29 October 2015 at 17.00 CET.

[65]  Form CO, Annex 18.

[66]  Form CO, paragraph 172.

[67]  Case COMP/M.7334 - Oracle / Micros, recital 30.

[68]  Case COMP/M.5529 - Oracle / Sun Microsystems, recitals 24 and following.

[69]  Avago supplies optical transceivers, which are classified as optical semiconductors.  Those  products  are  modules  that  enable  computer
systems to use fiber optic technology to communicate between system components. Avago represents only [5-10]% of the segment. Broadcom  does  not
supply Optics.

[70]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, questions 20-22.

[71]  See replies to Commission questionnaire to competitors Q1 of 5 October 2015, question 20.1.

[72]  Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations  between  undertakings
("Non-Horizontal Merger Guidelines"), OJ C 265, 18.10.2008, p. 6–25, paragraph 104.

[73]  Form CO, Annex 18.

[74]  Form CO, Annex 18.

[75]  Replies to Commission questionnaire to customers Q2 of 5 October 2015, question 5.

[76]  Replies to Commission questionnaire to customers Q2 of 5 October 2015, question 10.

[77]  See for example the reply of a customer in Replies to Commission questionnaire to customers Q2 of 5 October 2015, question 10.

[78]  See for example Cisco's support for a chip start-up that would compete  with  Broadcom  http://www.wsj.com/articles/chip-startup-backed-by-
cisco-systems-lands-eighth-funding-round-1444017602.

[79]  See for example Marvell's non-confidential reply to Commission questionnaire to customers Q2 of 5 October 2015, question 10.1.

[80]  Form CO, Annex 18.

-----------------------
 In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC)  No  139/2004
 concerning non-disclosure of business secrets and other confidential information.  The  omissions  are  shown  thus  […].  Where  possible  the
 information omitted has been replaced by ranges of figures or a general description.

                                                                  PUBLIC VERSION

                                                                 MERGER PROCEDURE