Q1: Exar has been on steady corporate acquisition program over the last couple of years. Was it a case of consolidate or be consolidated?
Louis DiNardo: The company pursued a lot of strategies between 2005 and 2012 and when I took over as CEO, January 3 2012, we were a relatively small company. There is latency between spending on R&D and return on investment so acquisition is a way to speed that up.
We've been able to pick up assets: Althior in software, Cadeka high performance analog products and talent. And the Stretch acquisition has given us end-to-end video surveillance technology and products. We also picked up some revenue along the way but the Integrated Memory Logic Ltd. (IML) acquisition is much more transformative. It gives us bulk – an additional $60 million in annual sales – and brings us into the sustainable category at around $200 million annual sales (see Exar buys Taiwanese display, lighting chip company).
Q2: How much did you pay for Stretch.
LD: We only paid $10,000 for the Stretch assets and paid off $7 million to $10 million of debts. So the venture capitalists took a hit on this but Stretch had $12 million in annual sales so that is a good purchase from our point of view.
Q3: Exar provides high-performance mixed-signal and power chips into such markets as storage, networking, communications infrastructure and industrial. These are not high growth markets. Does Exar need to get into higher growth markets?
LD: Not including IML, about 60 percent of our business is industrial which, in terms of growth, is always going to be GDP plus a little bit. I think we can outperform that, but it is never going to be 20 percent per annum. In networking there has been some uncertainty over standards for data warehousing and customers are waiting for the dust to settle.
Which is why there is great value in the IML acquisition. As we grow up we have to play in the consumer sector one way or another. IML is a Taiwan-listed company, which makes acquisition more complex, but they have this great position in programmable gamma correction for displays and common-mode voltage IC to drive rows and columns in displays.
The other place they operate is LED lighting where they have a means of using ac to drive the LEDs, which eliminates a second board for ac-dc conversion that is usually present in LED light bulbs. This can take the price of a LED light bulb down from $1 to 40 to 45 cents.