Broadcom (NASDAQ:BRCM), a provider of semiconductor solutions for wired and wireless communications, announced a multi-year patent license deal with MIPS Technologies (NASDAQ:MIPS). MIPS, which at some point was a strong competitor to ARM Holdings (LSE:ARM.L) in licensing technology for microprocessors and related intellectual property, has been struggling over recent years. If rumors are to be believed, the company is looking for a potential acquirer since it has failed to make a meaningful mark in the growing mobile computing space.
As MIPS’ largest customer, Broadcom could see a positive impact on its processor IP line and overall portfolio it it decides to buy out MIPS. However, for now, the company has signed a multi-year patent and technology license for $26.5 million and, with the new license agreement, Broadcom, its affiliates, customers and suppliers are released from any claims on infringement of patents owned or licensable by MIPS. 
Broadcom has been a licensee of MIPS since 1998, and the recent deal gives it a non-exclusive worldwide license to patents owned or licensable by MIPS for use in making and selling Broadcom’s products. In addition, the deal provides a muli-year extension for Broadcom’s current MIPS architecture and licenses, including some prepaid support and maintenance. The license is set to expire upon the expiration of the last patent licensed to Broadcom under the agreement.
Over the years, Broadcom has increased its association with MIPS both via internal development as well as through certain acquisitions such as Sibyte, a maker of high-end MIPS network processors, and the Xilleon product line, which made digital TV processor chips based on MIPS architecture. More recently, the company completed the acquisition of Beceem, which makes 4G chipsets based on MIPS core.
MIPS architecture is used in home entertainment, networking, mobile and embedded applications, and Broadcom has a dominant share in most of these markets. By signing the license agreement, Broadcom can avoid future litigation and it does well for the company’s valuation as well.
Our price estimate of $47.21 stands at a premium of around 40% to the current market price.Notes: