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Microchip, Micrel dispute simmers

Posted: 04 May 2016 ?? ?Print Version ?Bookmark and Share

Keywords:acquisition? dispute? semiconductor merger?

Ray Zinn is trying to save face after managing a company that was in a downhill slide, according to Microchip's chief executive who said in an interview with EE Times he "did not promise anything to Ray."

Micrel "was horribly run. It only made 6% operating profit as a percentage of revenue, revenues had not increased in ten years and had been going down consistently for the last four years," said Sanghi, noting Microchip's operating profits were at 30% of revenues.

In February 2015 when acquisition talks began, Micrel said it expected to have revenues of $265 million that year. "By the time we completed the acquisition on August 2, the estimate dropped to $230 million," forcing Microchip to "re-do the numbers" on the deal, Sanghi recalled.

Microchip only stepped in after activist investors took over 12% of Micrel's equity and demanded change, Sanghi said.

Microchip CEO

Figure 2: Steve Sanghi, CEO of Microchip

"The company had underperformed for a long period of time. We did the hard work of transitioning the company, taking profits to 18% in the December quarter and we will take them to 30%," he said.

Micrel had 689 employees when Microchip acquired it, Sanghi said. It has "a little under 600 now" and will have an unknown number fewer once its fab is closed later this year. "We kept the best people...the layoffs were fair," he said.

Micrel's activist investors and "all the employees of Micrel said that fab should have been closed long ago, but [Zinn] was in love with that expensive plant...This is a decision Ray should have made on his watch," Sanghi said. The fab was at 30% utilisation and "was not cost effective to run," he added.

Microchip announced in August plans to transition production to its eight-inch fabs in Arizona and Oregon. Some Micrel fab workers will be offered jobs in those plants, Sanghi said, declining to give numbers. "It's hard to call it Silicon Valley anymore, it's a very expensive area," he added.

Sanghi said he did decline Zinn's request to endorse his management book.

"The book didn't represent the Micrel I bought, so if I wrote honest comments they wouldn't be flattering," said Sanghi. "The systems in the company, the profitability, the decision making around hanging on to the fabthose were awful decisions," he said.

Sanghi said employees give him a satisfaction rating of more than 80% on a Web site called Glass Door. By contrast, Zinn scored under 50% when he was CEO at Micrel, Sanghi said.

Zinn charged Microchip has been on an acquisition spree since 2010, buying up a string of ever larger companies, in part to prop up its revenue growth.

Sanghi's "organic [product revenue] growth has not been so good, that's why he has to keep acquiring companies to grow," Zinn said. "At some point you hit the wall and can't keep acquiring companies because the debt ratio becomes too high, and he will have to grow organically," he added.

Sanghi countered that "over the last six years Microchip's organic growth was 8.3% per year and total growth [including revenue from acquired products] was 17.3% year." By contrast, "Micrel's growth was zero over that same six-year period," he said.

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