Hitachi to spin off SH into MPU IP licensing firm
Jerry Ascierto
Mar 27, 2000 --- San Jose?In an unprecedented move for a Japanese company, Hitachi Corp. plans to spin-off the intellectual property (IP) assets of its SuperH (SH) microprocessor division as a standalone entity, with hopes of taking that entity public, Electronic News has learned.
The action may be a precursor to one of the hottest initial public offerings (IPOs) of the decade, combining a strong brand name with a proven, successful product line. The spin-off is expected to occur in the second half of this year, with an IPO tentatively slated 12 to 18 months away, according to sources close to the company, speaking on the condition of anonymity. The firm will be based in the Silicon Valley area as a separate, independent entity, with Hitachi maintaining a majority stake.
The new firm will be headed by Phil Thomas, Hitachi Semiconductor (America) Inc.?s vice president of global strategic initiatives, the sources said. When contacted, Thomas declined to confirm or deny the reports of the foundation of the new firm.
The move would be revolutionary in the Japanese business culture, where concepts such as employee profit-sharing and spin-outs rarely see the light of day. While the SH architecture is one of the crown jewels of the Hitachi empire, the sources said that the initiative was spearheaded by top ranking executives in Hitachi global to release the ?trapped value? within the company.
?The financial analysts like to use the term ?trapped value,? that is, value trapped inside a company that they can release with a spin-off,? said Tom Halfhill of market research firm MicroDesign Resources, Sunnyvale, Calif. ?And the SH architecture seems like it?d be one of the more profitable parts of the company.?
The move may be a harbinger of change in the Japanese business culture. A successful spin-off by Hitachi might reduce the perception of risk for other Japanese technology firms, paving the way for further such ventures.
The move would allow the spin-off, as a self-governing entity, to move quickly and respond quickly. More importantly, the spin-off may also propel the SH architecture?once the most popular 32-bit and above RISC embedded microprocessor architecture in the world?up a few notches in the worldwide market-share rankings. Displaced by MIPS Technologies Inc., Mountain View, Calif., in 1995, the SH architecture may now be preparing for a comeback.
The new firm will aim its efforts at the Internet infrastructure space, targeting system-on-a-chip (SOC) developers. The as-yet-unnamed spin-off will function according to a straight intellectual property (IP) business model, licensing and bundling the SH IP with other essential IP components needed for SOCs used in key communications, consumer, and computing applications.
Target markets will include network access and residential gateways, markets where embedded processors require high degrees of IP integration. In addition to generic cores like USB and 1394IEEE, the firm would also include in its development kit certain ?Star IP,? such as a PHY MAC layer in the cable space, an MPEG-2 block in the video compression space, and a G.7xx speech codec for the middleware space, the sources said.
Hitachi?s intention is to open the architecture up to the market to encourage proliferation and grow the SH?s total available market, according to the sources. Hitachi would make available to the spin-off new cores as they are developed, and in conjunction with Hitachi?s already impressive IP library, that could add even more value to the proposition. Reaction to the reports was overwhelmingly positive by industry analysts, who see the move as revolutionary and extremely shrewd.
?I think it?s a fabulous idea,? said Gerry Kaufhold, analyst at market research firm Cahners In-Stat Group, Scottsdale, Ariz. ?The SH architecture is a winner, and they can really proliferate it a lot faster if a lot of people have access to it.?
Kaufhold noted that in the late 1980s the architecture grew out of an initiative by the major Japanese electronics firms to defend against Intel Corp.?s stranglehold in the CPU arena. ?If you consider their strategy, to come up with a CPU architecture to defend against Intel, no one Japanese company could do that. They have to open the architecture up so that a whole bunch of people can use it.?
?Hitachi can?t rule the world, but the SH architecture sure could,? Kaufhold added.
?SH is an extremely silicon-efficient CPU, and that?s been its claim to fame. It can get lots of MIPS on a small silicon footprint, which is ideal for integration. Going forward, the SH series is a really nice fit for a lot of next-generation multimedia boxes, Personal Video Recorders, satellite set-top boxes, etc., and it can be scaled down for mobile applications,? Kaufhold said.
?This is one of the most successful embedded architectures in history,? agreed Peter Glaskowsky, senior analyst at market research firm MicroDesign Resources. One of the things that have kept Japanese processor designers a little behind U.S. designers is that they haven?t offered their key employees the chance to benefit financially from the success of the business, Glaskowsky added.
?I think it?s a welcome change to see a Japanese company recognize the benefit of letting a troop of creative people be more autonomous. It?s refreshing,? Glaskowsky said.
?Hitachi is probably looking at the way ARM?s stock has gone in the last couple of years, as well as SGI?s (Silicon Graphics Inc.) spinning out of MIPS Technologies. An IPO would be worthwhile,? said Halfhill. Indeed, history may repeat itself.
ARM Holdings plc and Rambus Inc., also semiconductor IP licensing firms, achieved outstanding market valuations after they went public. This history may bode well for the SH spin-off.
On April 17, 1998, its first day of trading on the NASDAQ, ARM, whose architecture is similar to the SH, closed with a valuation around $498 million, or 11,730,000 shares closing at $42.50. By the close of the market on Thursday, ARM?s market capitalization was roughly $10.8 billion. Rambus Inc., Mountain View, Calif., another developer of Star IP, had a market valuation of $83 million when it went public on May 14, 1997. On Thursday, March 23, 2000, the firm closed the day?s trading with a market capitalization just over $8 billion.
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