[TI and AMTX hit the IBD!!!!]
Plug your ears, cover your eyes, 'cause I'm going to swear. *&^%$#@!!!!!!
Okay, I'm not really angry, just frustrated. Why couldn't this have happened sooner????
Check out today's (actually Monday's) Investor's Business Daily. Headlines, "Why Did Texas Instruments Shell Out For A Small Fry?"
<<< The Internet's big appetite for faster access has prodded chipmaker Texas Instruments Inc. to buy a small modem company. San Jose, Calif.-based Amati Communications Corp. could become a big part of TI. It holds key patents on an emerging technology for faster Internet access. As a result, a company that had only $13.2 million in sales for the fiscal year ended Aug. 2 commanded a $395 million price from TI.
The deal positions TI as a leading supplier of chips for digital subscriber line technology, analysts say.
Phone companies such as US West Communications Group and GTE Corp. are starting to upgrade networks with DSL gear to offer much speedier Net access. DSL modems, which work over existing phone lines, transmit data about 200 times faster than today's standard modems.
The price tag of 30 times annual revenue might appear steep. But TI says the deal is well worth it.
''What's the net present value of the next generation of global Internet connectivity worth?'' said Greg Waters, TI's director of network access products. ''This arguably gives TI the premier position of chips, software and field trial experience (in DSL).''
The Amati deal also could add to Dallas-based TI's already healthy stream of licensing revenue, analysts say.
''Amati holds a lot of intellectual property,'' said Will Strauss, president of Forward Concepts Inc., a Tempe, Ariz.-based market research firm. ''That's the thing I can see that makes the deal worth the $395 million.''
TI has a good nose for royalties. It already garners a few hundred million dollars a year in royalties on chip patents, analysts say. Amati has licensed its technology to Canada's Northern Telecom Ltd., France's Alcatel, Japan's NEC Corp. , PairGain Technologies Inc. of Cerritos, Calif., and chipmakers Analog Devices Inc. of Norwood, Mass., and Motorola Inc. of Schaumburg, Ill.
Then again, a new licensing stream might not result from the Amati deal. Even so, TI could be happy to emerge as a leading supplier of DSL chips.
''The main thing for TI is that if this technology (DSL) wins going forward, they want to make sure they have it locked up pretty good,'' said Daniel Niles, financial analyst with BancAmerica Robertson Stephens Inc. in San Francisco. ''I don't think royalties is the first reason for this.''
About 40% of TI's business now comes from specialized chips called digital signal processors. Amati's technology could be included in TI's DSP chips to suppliers of networking gear, analysts say. The technology would make the DSP chips programmable for DSL gear.
One question, though, is how important Amati's technology - mathematical algorithms that are programmed into chips - will be in the future.
Modem chips squeeze more speed over phone lines by using these algorithms. The algorithms implement digital modulation schemes - a trick in physics that boosts speed. DSL is one type of modulation.
Amati's technology is based on a technique called discrete multitone, or DMT, modulation. Most DSL gear bought by phone companies so far, however, uses a different modulation approach. It's called carrierless amplitude phase, or CAP.
Red Bank, N.J.-based GlobeSpan Technologies Inc., formerly a unit of AT&T Corp., is the main supplier of CAP-based chips. Still, many analysts think DMT techniques will win out in the long run.
''TI's intention is to become the Intel (Corp.) of the DMT world,'' said Charles Pluckhahn, an analyst with Dain Bosworth in Seattle.
Pluckhahn notes that like TI, Westell Technology Inc. also think DMT modulation will play a big future role. Aurora, Ill.-based Westell wanted to buy Amati, as well.
In October, it tried to acquire Amati in a stock deal valued at $394 million. Then TI swooped in with a cash offer. Amati will pay Westell a $14.8 million breakup fee.
TI expects to take a one-time charge in the fourth quarter for in-process research and development. The 120-employee Amati will become a subsidiary of TI's semiconductor group.
Westell also is getting rights to make and sell Amati's system products. Westell's DSL customers include Philadelphia- based Bell Atlantic Corp., Chicago-based Ameritech Corp., Bell Canada, GTE and US West.
TI even will sell chips to Westell. And Pluckhahn notes that by acquiring Amati, TI also freezes out rival Motorola. Motorola had been developing DMT-based chips for Amati.
TI expects to roll out new chips using Amati's technology in the first quarter of '98.
Waters says that TI has scored a coup in gaining Westell as a customer.
''(Westell), the world's largest shipper of CAP modems and a public partner of Motorola, is now very public in its ambitions to incorporate TI's DSP technology in, really, all their systems going forward,'' Waters said. ''That's quite significant from our standpoint.''
Acquiring Amati is one of a series of moves by TI to bolster its thriving DSP business. TI held about 45% of the $2.4 billion worldwide DSP market in '96, says Forward Concepts.
TI recently announced a $100 million venture fund to seed new markets related to DSPs. >>>>
Is it "Great minds think alike" or "A foolish consistency is the hobgoblin of little minds". Hope the former. |
