Industrial IoT drives Microsemi-Vitesse merger

Industrial IoT drives Microsemi-Vitesse merger

Business news |
By eeNews Europe

Microsemi is paying USD 5.28 a share in cash for each Vitesse share, which represents a premium of 36% 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 vs. ARM conflict is on the horizon. It’s unclear how the new company will handle its separate processor cores – Vitesse’ product family is based on Imagination Technologies’ MIPS core and Microsemi’s product line is based on ARM’s Cortex M microcontroller core.

Microsemi (Aliso Viejo, Calif.) 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, fiber 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. Garnter’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, Microsemi 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.”

Technically speaking, however, there are a few caveats. From an engineering point of view, Hackenberg pointed out that the high performance processors supplied by Vitesse are based on Imagination Technologies’ MIPS core. Microsemi’s smaller microcontroller products use ARM’s Cortex core.

These core technologies are optimized for the ICs they’ve been designed into, he explained.

“MIPS CPUs are highly optimized for code density and improved data throughput for bandwidth. In contrast, ARM MCU cores are more optimized for low power device and connectivity control functions,” he observed.

With most major processor suppliers reducing their portfolios of core technologies to lower overhead expenses, it’s not clear how Microsemi will deal with product lines based on two different cores.

Hackenberg said, “That is not to say there aren’t many very successful IC vendors maintaining diverse product lines. But it may be a challenge for this new company to quickly adapt the expertise that both sides bring to the table.”

Asked to describe Microsemi, the IHS analyst said that Microsemi’s value proposition is their reliability and flexibility to address very specific needs. They do this with configurable microcontrollers, their own memory solutions and a number of application-specific ICs for high reliability apps.

On the other hand, Vitesse, although a chip supplier, has a broader portfolio which includes “applications, services and networking design turnkey support,” Hackenberg said. “They target high-speed networking applications as well as network security. They do this with their broader IP portfolio and array of networking ICs from interfaces to high-performance network processing units.”

Two old guards
The merger represents the union of two very mature, well-established semiconductor companies. Microsemiconductor Corp, who changed its name to Microsemi Corporation in March 1983, was founded in 1960. Vitesse started up in 1984.

In announcing the financial results of the first quarter of FY2015 that ended last December, Microsemi’s CEO said the company generated 36 percent of its revenue from communications, 28 percent from defense and security end markets and 23 percent from the industrial market.

Through the acquisition of Vitesse, Microsemi is hoping to update its broader portfolio and strengthen its communications expertise.

The deal is expected to close in the second quarter. The Vitesse deal follows Microsemi’s $230 million acquisition of timing IC vendor Symmetricom in 2013.

— Junko Yoshida, Chief International Correspondent, EE Times

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