Emulex to Pay Broadcom in Partial Settlement

Global semiconductor solution company Broadcom (NASDAQ: BRCM) will receive payment from Emulex (NYSE: ELX) for licensing and release fees in a limited settlement between the two businesses. Broadcom previously alleged that Emulex infringed upon some of its patents.

Litigation will undoubtedly continue between Broadcom and Emulex, as only certain claims are being dismissed from the case following this agreement.

Under the new settlement, Broadcom will receive payment from Emulex for licensing fees and a release pertaining to patents that Emulex will obtain (relating to its products). However, Emulex is the not the only one receiving something concrete out of the deal.

According to this morning's press release, Emulex agreed to provide certain rights to Broadcom, protecting the company from Emulex patent assertions.

Clearly, the ongoing case has not forced investors and analysts to shy away from investing in Broadcom, as the company was recently initiated by Cantor Fitzgerald with a Buy rating. The firm noted that Broadcom is currently leading the way in communications chips as the biggest supplier of semiconductors for the worldwide market, which could explain why Emulex wants a piece of the patent pie.

"Broadcom estimates that 99.98% of all internet traffic crosses at least one Broadcom chip, in the home, across the network, or in a mobile device. With its broad exposure to communications markets, Broadcom has a number of significant growth drivers, but also suffers from cyclicality in some markets," Cantor Fitzgerald noted in a research report last month.

The Broadcom U.S. Patent Numbers 7,471,691; 7,058,150; and 6,424,194 will be available for Emulex's use once the patent agreement is completed.

Broadcom closed yesterday at $33.69, up around 15% year-to-date, while Emulex closed yesterday at $7.24, up about 5.5% year-to-date.