[repeat?] Harmonic tunes in to DiviCom -- C-Cube subsidiary is focus of $1.7B acquisition; will divest IC biz
Mark Hachman
11/01/1999
Electronic Buyers' News
Page 10
Copyright 1999 CMP Publications Inc.
Silicon Valley- C-Cube Microsystems Inc.'s unexpected $1.7 billion deal to be acquired by Harmonic Inc. last week will leave it once again as a pure-play semiconductor company.
Harmonic's intent behind the acquisition is to capitalize on the strengths of DiviCom, C-Cube's MPEG encoder subsidiary that the company acquired in August 1996 for $65.7 million. Before Harmonic completes the deal by the first quarter of 2000 and absorbs DiviCom, it will either spin off C-Cube's semiconductor business to shareholders, or sell it to a high bidder.
In C-Cube's third quarter, the semiconductor business represented $52.3 million, or 51.6% of the company's $101.4 million in revenue. For all of 1999, the semiconductor business is estimated to account for $210 million, 52% of the more than $400 million C-Cube anticipates in revenue.
For DiviCom and Harmonic, the synergies of the deal were loudly applauded by analysts listening in on Wednesday's conference call. Harmonic already sells video, voice, and data systems for cable, satellite, telecommunications, and wireless broadcasters. Divicom's MPEG encoder products will now add content creation to the Sunnyvale, Calif.-based company's services.
The deal "creates a powerful infrastructure company that will be a leading provider of video, voice, and data to the cable, satellite, and terrestrial markets," said Alexandre Balkanski, C-Cube's chief executive, during the call. "DiviCom's expertise in the design of MPEG encoders, aided by the superior encoding technology of our semiconductor silicon company, has driven the digital - video markets. We anticipate that these synergies will continue to drive the market."
Under the terms of the deal, C-Cube, headquartered in Milpitas, Calif., will retain its more than 500 employees, while approximately 50 to 60 DiviCom workers will join Harmonic's team. C-Cube's management structure will remain intact under Umesh Padval, C-Cube's president. However, Balkanski, the current chief executive, will cede his position to Padval and remain as a member of C-Cube's board.
Although C-Cube will be independent and retain its own intellectual property, the company will have access to the IP developed by DiviCom through a licensing agreement with Harmonic. C-Cube will treat the combined company as a customer, albeit a close one.
"It looks like a good deal at the first cut," noted Dan Scovel, an analyst with Fahnestock & Co. Inc., New York.
Indeed, C-Cube is not being tossed aside. Instead, it will be deeded approximately $150 million in cash for research and acquisitions, balanced against the $250 million or so analysts expect in sales for its 2000 fiscal year. During the past five years, C-Cube's gross margins have averaged 57%.
Both In-Stat Inc. and Dataquest Inc. named C-Cube the top supplier of MPEG decoder silicon for 1998, although the company has also expanded into encoders and codecs to continue its growth.
That development path will continue, given a deal Harmonic has already signed to continue developing products using C-Cube's silicon, spanning multiple product generations. Balkanski estimated the sales contract will be worth $10 million annually.
November 01, 1999
|
