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Taiwan fabless buyouts not yet in the bag

Posted: 18 Dec 2006 ?? ?Print Version ?Bookmark and Share

Keywords:Ethernet? 802.11n? WLAN? USB? ODMs?

Now's the time to shop for small, fabless companies in Taiwan. Technological sophistication is steadily improving, while valuations remain reasonableat least compared with U.S. companies. Yet, while they may be cheaper, they won't be fire sales, and persuading founders to sell out is still a challenge.

The mergers and acquisitions scene here is beginning to percolate. In the past year or so, some U.S. companies have come knocking, using acquisitions to round out their technology portfolios or to seek closer ties to the region's ODMs.

Late in October, Atheros Communications Inc. picked up its second company in Taiwan in less than a year. Lacking GbE technology for the 802.11n market, Atheros turned to Attansic Technology Co., a designer of Ethernet chips and a subsidiary of Asustek Computer, one of Taiwan's largest ODMs. It picked up Attansic for $46.5 million in cash and $25 million in Atheros common stock.

Atheros said the deal will help it offer an integrated SoC solution for consumer and small office/home office wireless access points and routers. Atheros will combine Attansic's GbE technology with its XSpan 802.11n wireless LAN chipsets and AR7100 line of wireless network processors to build reference designs for 802.11n access points and routers. The .11n standard, with a PHY speed of 600Mbps, will eventually require the headroom provided by GbE.

Earlier this year, Atheros tapped Taiwan to shore up its core offerings in WLAN, agreeing in April to pay $23 million for Zydas Technology Corp., the WLAN specialist that had most recently focused on USB adapters.

In the last year or so, a few other companies have looked to Taiwan as well. To broaden its reach into value PCs, Nvidia Corp. paid $52 million for ULi Corp, a maker of chipsets. Diodes Inc., a maker of discrete semiconductors, paid $30 million for Anachip Corp., a Taiwan fabless analog IC company.

A few trends are converging to make some companies attractive targets. "The technology of Taiwan companies is catching up with U.S. companies, so unless it is very advanced technology, you can find the people to implement it in Taiwan. To do it in the U.S. would be much more expensive," said Michael Lu, president of Airoha Technology.

Improved design capability
Atheros CEO Craig Barratt said his company looked to Taiwan because he has seen a significant increase in the design, R&D and engineering capability of Asian companies during the past few years. "There has really been tremendous growth in companies doing pretty impressive R&D, creative engineering and product development," he said.

A recent study of R&D spending in Asia supports his view. Taiwan and South Korean companies increased R&D spending by 30.5 percent and 12 percent, respectively, last year, according to a survey by U.K's Department of Trade and Industry. The survey, which looks at 1,250 of the region's biggest R&D spenders, found combined R&D spending of $4.6 billion44.6 percent higher than the average of the prior four years.

Buyers beware
Still, many of the small companies in Taiwan that might be takeover targets are traditionally tight with R&D spending, retarding their ability to innovate. So buyers beware, said Cheng Ming-kai, head of technology research for CLSA Asia Pacific Markets. Taiwan fabless revenue is growing slower than their U.S. counterparts, he said, and as product cycles speed up, they will fall behind. "The entire model is built on cost reduction, and not innovation," he said.

Debates aside, even if the timing is good, buyers will need to be patient because cinching a deal won't be easy, say some observers. Many local entrepreneurs, even of struggling companies, may be hesitant to sell, because "many people would rather be the king of their own small enterprise than a team member of a bigger enterprise," said Jeremy Wang, Asia Pacific director of the Fabless Semiconductor Association and a former venture capitalist.

- Mike Clendenin
EE Times

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