SAN JOSE, Calif. -- Sigma Designs Inc. is in discussions to acquire CopperGate Communications Inc., according to reports.
According to Globes, Sigma Designs seeks to buy CopperGate for $200-to-$250 million. The paper reports that Sigma Designs stepped in after Mellanox Technologies Ltd. walked away from a deal. Sigma Designs declined to comment.
''We think that the sale is coming from a point of weakness, as the company has been on the block for six months,'' said Daniel Amir, an analyst with Lazard Capital Markets, in a report.
''CopperGate is one of the only plays in Home PNA. CopperGate chips are designed for the HomePNA, HomePlug AV and G.hn standards for home networking. We estimate 2009 revenue of (about) $80 million, (about) 90 percent of which comes from AT&T, its largest customer,'' he said.
According to the analyst, the deal makes sense for three reasons:
1. ''Sigma Designs' and CopperGate's chips sit next to each other on the board for AT&T set-top boxes.''
2. ''Sigma Designs is familiar with CopperGate's end customer(s) and, in the long run, this could allow Sigma Designs to corner the market for ATT set-top boxes.''
3. ''It would give Sigma Designs a significant advantage over Broadcom in integrating the two chips.''
According to the analyst, the deal does not makes sense for three reasons:
1. ''The purchase price may be too high given the risk associated with a single-customer story and lack of traction outside of ATT for its technology, plus the acquisition may be dilutive.''
2. ''The acquisition does not expand Sigma Design's TAM.''
3. ''Depending on the amount of cash used, we could see a lower floor for Sigma Designs shares.''
In an e-mail, Ken Lowe, vice president of business development and strategic marketing at Sigma Designs, said: ''Unfortunately, I'm not at liberty to make any direct comments. I can say that Sigma maintains an open dialog with a wide range of industry participants regarding mutual business opportunities, development partnerships, and acquisition potential. Coppergate is amongst the companies that we maintain active discussions with. Sigma will issue required disclosures about material agreements when appropriate, but cannot comment about rumors or conjecture.''