By Don Clark and Joshua Jamerson

Broadcom Ltd. agreed to buy Brocade Communications Systems Inc. for $5.5 billion, expanding beyond its main business in chips to add boxes that help connect storage systems to computers in data centers.

Broadcom, one of Silicon Valley's most aggressive acquirers, said it plans to sell Brocade's other communications technology businesses to avoid competing with companies that now buy Broadcom chips.

The deal stands to help Broadcom reduce its reliance on sales of wireless chips for smartphones, a market that has slowed lately. Apple Inc., its largest customer, in October said it sold 45.5 million iPhones in the quarter ended in September, 2.5 million fewer than a year earlier.

Broadcom agreed to pay $12.75 a share for Brocade, a 47% premium over Brocade's closing share value on Friday, before news outlets reported on talks of a potential deal.

Brocade's stock rose 10% to $12.39. Broadcom's shares rose 1% to $171.15.

The company now called Broadcom operated as Avago Technologies Ltd. until February, when it completed a $37 billion deal to buy Broadcom Corp. That was the largest acquisition in the history of the semiconductor industry before Qualcomm Inc. last month announced a $39 billion deal for NXP Semiconductors NV.

Under Hock Tan, Broadcom's chief executive, the company has pursued a string of acquisitions, in some cases moving quickly to sell off parts of the acquired operations. The company in 2014 purchased LSI Corp., for example, and then sold off businesses to Seagate Technology PLC and Intel Corp.

Broadcom has reason to pursue the same tactic in the latest deal. It sells networking chips to most of the major makers of network switching systems, including Cisco Systems Inc., Hewlett Packard Enterprise Co. and others.

Brocade, best known for storage networking boxes that other companies sell under their own brands, has diversified into switching systems and software. If Broadcom kept those businesses, it would become a competitor to some of its largest customers, a situation most chip makers try to avoid.

So Broadcom, which already sells some storage-related chips, plans to sell all of Brocade's businesses outside that sector and expressed confidence it can find buyers.

"We are confident that there will be a fair amount of interest," said Thomas Krause, Broadcom's chief financial officer, inan interview.

The divestitures are expected to include Wi-Fi device maker Ruckus Wireless, which Brocade agreed to buy in April for $1.2 billion.

"Having just completed the Ruckus acquisition, we were confident in our strategy, our team and our path forward," wrote Lloyd Carney, Brocade's chief executive, in an internal message to the company's employees.

"We were not looking to sell the company. However, when Broadcom approached us with a compelling offer, we had an obligation to consider that offer, along with other alternative opportunities," he said.

The deal with Brocade, subject to regulatory approval, is expected to close in the second half of Broadcom's current year, which began Oct 31.

Write to Don Clark at don.clark@wsj.com and Joshua Jamerson at joshua.jamerson@wsj.com

(END) Dow Jones Newswires

November 02, 2016 13:06 ET (17:06 GMT)

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