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Microsemi-Vitesse merger: A bad fit?

Posted: 19 Mar 2015 ?? ?Print Version ?Bookmark and Share

Keywords:Ethernet Everywhere? chip supplier? satellites? LAN? MIPS?

Microsemi Corp. announced that it would acquire Vitesse Semiconductor Corp. for $389 million. As the two businesses join the bandwagon of M&As among chip vendors, not everyone is convinced that the new company will thrive.

Microsemi is paying $5.28 a share in cash for each Vitesse share, which represents a premium of 36 per cent over Vitesse's Tuesday closing. Under terms of the deal, Vitesse has reportedly until April 8 to solicit a superior counterbid, in what is known as a go-shop provision.

The merger's focus is "communications semiconductors," with plans to direct the combined company at "carrier, enterprise and industrial Internet of Things markets," according to Microsemi's statements.

While the two insisted that they play in complementary fields, technically speaking, a MIPS versus ARM conflict is on the horizon. It's unclear how the new company will handle its separate processor coresVitesse' product family is based on Imagination Technologies' MIPS core and Microsemi's product line is based on ARM's Cortex M microcontroller core.

Microsemi is known as a chip supplier for military and commercial satellites and aircraft, wireless and wired LAN systems, oilfield equipment, and airport security systems. Microsemi CEO James Peterson explained what drove the deal was Microsemi's "continuing commitment to grow as a communications semiconductor company."

Vitesse, a self-styled "Ethernet Everywhere" company, designs, develops and markets chips for carrier and enterprise networking applications worldwide. In particular, Vitesse offers carrier Ethernet switch engines, including mobile access equipment, such as base stations, small cells, fibre and microwave wireless backhaul products.

In a statement, Chris Gardner, Vitesse's CEO said, "I believe Microsemi will be able to leverage Vitesse's Ethernet technology and capabilities further into the communications market and has the scale to implement the adoption of our industrial IoT strategy."

Good fit?

Not everybody is sold on the Microsemi-Vitesse merger plan. Gartner's Research Director Steve Ohr pointed out, "Vitesse told analysts in December that they would concentrate on high-end Ethernet, particularly the trunk line communications." However, he added, "Our assessment suggests that's not a thriving business, and how they intended to make money from it was a mystery."

Can Microsemi save the day for Vitesse, then?

Ohr said, "Microsemi has had a tendency to 'bottom fish,' to pull in companies that looked like losers, but, oddly, seemed to make sense in the long term. Microsemi had investments in Power over Ethernet (PoE), and maybe someone at Microsemi thought Vitesse's products would help with that."

On the other hand, Tom Hackenberg, principal analyst responsible for MCUs and DSPs at IHS Global Inc., views the deal as a "good fit strategically." He cited Microsemi's strength in high reliability markets (read: military, aerospace, telecommunications infrastructure, some automotive). Meanwhile, Vitesse' product portfolio "is almost exclusively Ethernet," he said.

Hackenberge, however, pointed out that the general Ethernet market is very competitive, with a lot of very large, well-known semiconductors.

Once merged, though, Microsemic can take Vitesse's Ethernet technology to markets "that are much more exclusive and less accessible to the broad telecommunication competitors," he explained. Many of these equipment designers rely on only providers with the expertise to provide certified high reliability and long-life products, he explained. "Together they should be able to expand their penetration in this cross-platform market."

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