CHANDLER, Ariz.-- In a move to quickly expand its analog portfolio for microcontroller customers, Microchip Technology Inc. here today announced plans to acquire TelCom Semiconductor Inc. of Mountain View, Calif., for $300 million in stock.
The purchase is intended to accelerate Microchip's efforts to offer stand-alone analog ICs and add functionality to embedded-control devices, said Steve Sanghi, president and chief executive officer of the Chandler microcontroller supplier.
"We estimate that there is approximately $1.50 of analog product embedded around each $1.00 of our microcontrollers," said the CEO. "One-and-a-half years ago, we began exploiting this opportunity by building and attaching our stand-alone analog products to our microcontrollers. TelCom brings to us a highly synergistic portfolio of analog products, which will accelerate our ability to capture this significant revenue opportunity," he added.
With deep historical roots in Silicon Valley, TelCom supplies analog and mixed-signal products serving a range of system applications, including thermal and power management. The publicly traded company posted revenues of $57.3 million and a net income of $13.1 million in 1999. TelCom employs nearly 300 people and was spun out of Teledyne Industries Inc. seven years ago in a management buyout.
Microchip said it expects the TelCom acquisition to be completed in the first quarter of 2001. Once the transaction is closed, TelCom will become a subsidiary of Microchip, which said it does not anticipate layoffs as a result of the merger.
For TelCom, the purchase will give its operations a larger sales force and global support to serve a larger customer base, said Bob Gargus, president and CEO of the Mountain View company. TelCom, like other chip suppliers serving wireless applications, warned recently Wall Street that its results were being impacted by a slowdown in cellular phones and inventory adjustments in the sector (see Aug. 16 story).
Last week, TelCom posted a 9% sequential drop in revenues to $18.2 million in the third quarter from sales of $20.01 million in the prior three-month period. Its third-quarter net income was $4.1 million vs. $5.3 million in the second quarter.
TelCom is also in a partnership with Phoenix-based On Semiconductor second-source thermal and power management ICs. The alliance was originally struck when On Semiconductor was part of Motorola Inc.'s Semiconductor Products Sector. It is unclear how Microchip's acquisition might impact that arrangement.