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Harmonic's C-Cube Buy Resonates On Wall Street
techweb.com
(10/29/99, 10:51 a.m. ET)
By Mark Hachman, Electronic Buyers' News
C-Cube Microsystems' unexpected $1.7 billion
acquisition by Harmonic on Thursday will leave
it once again as a pure-play semiconductor
company.
The primary motivation driving the deal is Harmonic's
desireto pull in the strengths of DiviCom, the MPEG
encoder subsidiary C-Cube acquired in August 1996
for $65.7 million. Before Harmonic completes the deal
and merges with DiviCom, however, it will either spin
off C-Cube's semiconductor business to shareholders,
or sell it to a high bidder. The transaction is expected to
close by the first quarter of 2000.
In C-Cube's third quarter, the semiconductor business
represented $52.3 million, or 51.6 percent, of the
company's $101.4 million in revenue. For all of 1999,
the semiconductor business is estimated to account for
$210 million, 52 percent of the more than $400 million
C-Cube anticipates in revenue.
For DiviCom and Harmonic, the vast stretch of
common ground that exists between the companies
pleased analysts.
"It looks like a good deal at the first cut," said Dan
Scovel, analyst with Fahnestock & Co., in New York.
Harmonic, in Sunnyvale, Calif., already sells video,
voice, and data transmission systems for cable, satellite,
telephone company, and wireless broadcasters. By
folding in Divicom's MPEG encoder products and
related technology, Harmonic will add content creation
services, as well.
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 CEO, during a call
with analysts. "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 these
synergies will continue to drive the market."
Under the terms of the deal, C-Cube, based in Milpitas,
Calif., will retain its more than 500 employees, while 50
to 60 DiviCom employees will join Harmonic's team.
Following the sale of Divicom, Balkanski will cede his
title to company president Umesh Padval, but will
remain on 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.
Indeed, C-Cube is not being tossed aside. Instead, it
will be deeded approximately $150 million in cash for
research and acquisitions.
During the past five years, C-Cube's gross margins
have averaged 57 percent. Both In-Stat and Dataquest
named the company the top supplier of MPEG decoder
silicon for 1998, though it has also expanded into
encoders and codecs to continue its growth.
That 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. |
