There is merger/acquisition mentioned, sort of:
To that extent, we expect that C-Cube might have to market its products in conjunction with that of a major networking system player, in order to arrive at an end-to-end solution for its customers."
On acquisition:
thestreet.com
Chipmaker Acquisitions Are Becoming Absolutely 'Fabless'
By Marcy Burstiner
Staff Reporter
6/14/99 8:00 PM ET
SAN FRANCISCO -- In the old days, a semiconductor company worth its silicon battled against competitors on its own. Rarely did one company buy another to gain market share. For one thing, integrating giant, costly fabrication plants was difficult.
But already this year dozens of chip companies have announced acquisitions. While numbers for chip mergers, many of which involve small privately held companies, are hard to gather, the trend is apparent in several deals that are huge by chip standards: Intel (INTC:Nasdaq) will pay $2.2 billion to purchase Level One Communications (LEVL:Nasdaq) and Philips Electronics paid about $1 billion to gain control of VLSI Technology (VLSI:Nasdaq), for example.
"Clearly things are changing," says Phillip Salsbury, CEO at Seeq Technology (SEEQ:Nasdaq), an 18-year-old network chipmaker that is being acquired by LSI Logic (LSI:NYSE) in a stock swap valued at $100 million. "In the technology area you have to demonstrate growth. It has become a very accepted strategy now."
Some Semiconductor Acquisitions
Acquirer Target
3DFX Interactive STB Systems
8x8 Odisei
Altera Boulder Creek Engineering
Applied Materials Obsidian
Broadcom Maverick Networks, Armedia Technology, Epigram
Integrated Device Technology Quality Semiconductor
Intel Level One, Dialogic, Williams
Lattice Semiconductor Vantis
LSI Logic Seeq Technology
Royal Philips Electronics VLSI Technology
STMicroelectronics Vision Group
Texas Instruments Telogy Networks, Integrated Sensor Solutions
Vitesse Semiconductor XaQti and Serano Systems
Edward Leonard, managing director of M&A firm Broadview Associates, said the spate of mergers is a result of the first upturn in the semiconductor industry since it switched over to a "fabless" model -- the practice of contracting out manufacturing. By the time the model firmly took hold in the mid-'90s, chip stocks had collapsed. With the surge in chip stocks that began Oct. 8 of last year, chip companies now have the cash and lucrative stock value to make purchases. And because many companies are fabless, they are less costly to buy and much easier to integrate, he says.
"The old-line semiconductor mentality that you can't do this is gone," he says.
At the same time, says Salsbury, technology is changing fast and big companies have realized they can acquire new designs faster by buying them rather than developing them in-house.
Salsbury originally came out of Intel and helped found Seeq back in 1981 with a few million dollars in venture capital and a handful of employees. That's all that was needed in those days to open a fabrication plant and start pumping out chips. You created your own manufacturing process that differentiated you from your competitors. That formed a barrier against mergers, because the processes were incompatible. Once companies went fabless, however, companies began creating designs that were more "portable" and able to be manufactured anywhere.
Meanwhile, he says, the customer base has consolidated. To hold on to a customer like Cisco (CSCO:Nasdaq) now you have to be able to guarantee a much larger volume of products than in the past, he says. And that was something Seeq was finding it harder and harder to do.
The first sign that things were changing, Leonard says, was Intel's purchase of graphics chipmaker Chips & Technologies in late 1997. Once people saw Intel making acquisitions, it shifted the industry mindset. It was about that time that his M&A boutique started doing semiconductor deals, he says.
Now, increasingly chip companies are finding that to prosper they have to diversify. No longer can companies like Intel exist on one key product. Diversification was a key reason that chip equipment maker Applied Materials (AMAT:Nasdaq) announced late last month it would buy Obsidian for $137 million, says Kenton King, an M&A attorney in the Silicon Valley office of Skadden Arps Meagher & Flom, which handled the deal. "It's a way for Applied to fill out their product lines," he says.
But despite all the reasons behind the shift toward mergers, the change surprises the old timers like Leonard and Salsbury. That's because the industry historically has been defined more by big egos than big companies. Many chip companies are still run by their founders decades after their inception: W.J. Sanders of Advanced Micro Devices (AMD:NYSE) is still at the helm after 30 years, Alfred Stein has headed VLSI since founding the company 20 years ago and, at LSI Logic, Wilfred Corrigan is still CEO 18 years after he started that company.
But now egos are giving way to commercial realities, Leonard says. "Today's deals are more about the shareholders than the CEO."
Acquisitions are becoming so accepted now, that they are planned even in the early financing stages of a start-up. "Smaller companies are starting now with an ultimate exit strategy that's not necessarily through an IPO," King says. "Your goal may no longer be to be the next Intel but to be bought by Intel."
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