PARK RIDGE, Ill. " The embedded-boards market is abuzz with speculation that Force Computers and Dy4 Systems Inc. had been placed on the trading block by parent Solectron Corp. Industry watchers agreed, however, that the sales, if they occur, would not herald a period of contraction in the boards industry.
Force (Fremont, Calif.) and Dy4 (Kanata, Ontario) became the focal point of industry buzz after Solectron publicly stated during an earnings call that it planned to sell off a large chunk of its businesses. "As definitive sales agreements are finalized, we will announce the names of the divested companies along with the appropriate details," said Michael Cannon, president and chief executive officer of Solectron (Milpitas, Calif.). "We currently anticipate that the cash proceeds from the sale of all companies presently planned to be divested will be in the range of $500 [million] to $600 million."
Although Solectron lists dozens of subsidiary companies on its annual report, analysts quickly homed in on Force Computers, a maker of embedded boards for telecom and other applications, and Dy4, a unit of Force that makes commercial off-the-shelf VME boards for military applications. Two investment firms-CIBC World Markets and Morgan Stanley-were reported to be taking bids for Force and Dy4, as well as for Spectrum Signal Processing Inc. (Burnaby, British Columbia), a maker of signal-processing boards. CIBC and Morgan Stanley did not return calls regarding the reports.
A spokeswoman said that Solectron "has made progress toward selling select businesses," but added that references to Force and Dy4 "are just rumors."
Industry insiders said last week that the spate of activity was not indicative of any larger trend in the boards market.
"Each one of those companies has its unique problems," said Ray Alderman, executive director of the VMEbus International Trade Association (VITA; Fountain Hills, Ariz.). "It's not an indication that the boards business, or any segment of the boards business, is collapsing."
"It's an anomaly," said Eric Gulliksen, project director for the embedded-development group at Venture Development Corp. (Natick, Mass.). "We're not seeing a lot of acquisition binges on the horizon."
Analysts said last week that Solectron needs cash and that there wasn't enough synergy between Force and Dy4. Force, they said, focuses on CompactPCI architectures and telecom, while Dy4 targets the venerable VME architecture commonly used in defense and aerospace. "The two didn't fit," Gulliksen said. "They rolled Dy4 into Force but it never really worked. Solectron would do better if they broke them apart. Sometimes, the whole is not always greater than the sum of its parts."
Dy4 came to Solectron as part of its $2.6 billion purchase of C-Mac Industries Inc. in 2001. Force was acquired in 1996 for $187.5 million.
Analysts said last week that Dy4, which is believed to have annual sales of approximately $65 million (Solectron would not confirm that figure), is expected go for around $150 million. Telecom board makers, meanwhile, are normally expected to sell for closer to one time their annual sales in the current economy. As such, Force, which is believed to have annual sales of about $235 million, could go for over $200 million. Most observers expected, however, that its selling price will be considerably lower, possibly below $180 million.
Industry observers speculated last week that industrial giant GE Fanuc Automation North America was on the verge of purchasing Dy4. In the past two years, GE Fanuc has acquired two other embedded-boards companies: Ramix Inc. (Ventura, Calif.) and single-board computer maker VMIC (Huntsville, Ala.). A spokeswoman said that GE Fanuc has "definitely not" made the acquisition.
Speculation about potential buyers of Force, which has been seen as a leader in the creation of new Advanced Telecom Computing Architecture boards, ranged from Motorola Computer Group (Tempe, Ariz.) to Radisys Corp. (Hillsboro, Ore.) to other board makers. Most observers agreed that the purchaser would have to be a large company, because Solectron is said to be seeking cash, rather than stock, in return.
"There are very few companies in the embedded market that are big enough to swallow an acquisition like this," said one executive who asked not to be named.
A sale of subsidiaries could put an end to Solectron's plan to create one-stop shopping for electronics customers, analysts said. "Contract manufacturers were eager to have a broad array of design services for customers, but in this economy it's been too slow to materialize," said Paul Zorfass of International Data Corp./FTI (Framingham, Mass.).