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Technology Stocks : Applied Micro Circuits Corp (AMCC) -- Ignore unavailable to you. Want to Upgrade?

To: Guy Gordon who wrote (648)	8/28/2000 6:04:02 PM
From: William F. Wager, Jr.	Respond to of 1805

Applied Micro Circuit Fills Holes With Acquisition By Thomas Lepri Staff Reporter 8/28/00 1:42 PM ET Fill out the product line first. Ask questions later. That's the way Wall Street is looking at the monstrous $4.5 billion communications semiconductor company Applied Micro Circuit (AMCC:Nasdaq - news) agreed to pay for MMC Networks (MMCN:Nasdaq - news). The conventional wisdom is that this deal, which has far fewer redundancies than a glance at the companies' initials would suggest, is a strong one, allowing AMC to fill some serious holes in its business. AMC was off about 3%, or 5.81, at 182.75, while MMC was up nearly 40%, or 31, at 109.25. (TSC wrote an earlier story about the deal as well.) AMC has a strong presence at both ends of the computer networking process, offering both high-end switches that manage groups of network connections and physical-layer products that translate information into forms that can be transmitted over a network. MMC Networks gives AMC a line of networking-processor products that go in between those two ends. That's important, since competitors like PMC-Sierra (PMCS: - news) and Vitesse Semiconductor (VTSS: - news) are able to sell everything from the switch to the physical layer already. "Several of their competitors had solutions that, while not the best or most optimized, were solutions nevertheless," said Pacific Growth Equities analyst Sandy Harrison, who rates AMC a strong buy and doesn't follow MMC. "So rather than buy a startup where all the risk was on AMC -- you don't know what they have or what they don't have -- you buy an established, public company where you understand the risks and opportunity a bit more." (Pacific Growth has no underwriting relationship with either company.) There is, however, an obvious downside to buying an established, public company: the very dear price tag AMC has put on MMC. The deal is the second largest ever in the semiconductor business, ranking behind the $7.6 billion Texas Instruments (TNX:NYSE - news) paid for Burr-Brown earlier this year. But the thinking on Wall Street is that AMC didn't have much of a choice, given the strong position of its competitors and the intense escalation of stock prices in the communications semiconductor group. "It vaults them instantly to the top of the heap of networking component suppliers," said SG Cowen analyst Drew Peck, who rates the stock a strong buy. (His firm has performed underwriting for AMC.) "And given the impact of new age accounting, which ignores things like amortization and goodwill, it makes sense financially. If people ever stopped and thought about the goodwill being paid for all these companies, they'd have a heart attack." In an acquisition, goodwill is the amount the buyer pays over a seller's book value, or the value of its assets. The acquirer then has to write off goodwill over time, which reduces earnings. "But the analysts and investors seem to be going along with this," Peck continued. "And therefore the price AMC is paying won't have much of an impact." --from TSC