Analysis: Dissecting the MIPS-Chipidea breakup

Technically speaking, "Although an SoC is likely to use both processor and analog IP, the two types of functions are distinct," explained Joseph Byrne, another Linley Group analyst. "There's little technical synergy between them."

In other words, "any synergy derives from having a larger portfolio of products to offer each customer and from cross-selling one product into the other product's installed base of customers. A challenge for MIPS's management was to keep advancing MIPS processor technology while devoting time and attention to the newly acquired analog business," said Byrne.

"This challenge was compounded by the fact that the analog business faltered immediately after the acquisition and before the global economic crisis. For the December 2007 quarter, the first full quarter after the acquisition, the analog business group generated nearly $10 million in revenue. Revenue declined steadily in each of the five subsequent quarters, and in the March 2009 quarter it was only $5 million."

The merger had other potential problems that were apparent from the beginning. First, MIPS emptied its bank account to fund the $147 million transaction, then borrowed heavily from a local bank to fund continuing operations. MIPS, which had a healthy cash reserve until the Chipidea acquisition, ended up paying hefty premiums on its term loan, putting pressure on the company to cut costs severely. Cost cutting and the resulting impact on the company were exacerbated by recent market weakness.

Integration was bound to be a problem, as MIPS itself acknowledged in a Securities and Exchange Commission (SEC) filing. MIPS was extending its reach not just into the analog IP business, an area where it had limited knowledge and sales and marketing expertise, but was also assuming control of a company based in Portugal with operations in various other European countries, a region where the parent company had not previously operated.

"This is a substantially larger acquisition than any that we have previously completed and involves technology and products that are largely new to us," MIPS said in its SEC filing. The "challenge will be further complicated by the geographical distance between our headquarters."

That was not all. MIPS needed all the help it could get understanding and integrating its new business unit. But Jose Franca, founder and CEO of Chipidea, who could have offered a bridge between the old MIPS and the enlarged company, resigned before the transaction closed. Franca's departure deprived the combined company of his input on integration and marketing challenges.

Franca and other key personnel at Chipidea "could be important to our ability to advance the Chipidea technology and to effectively market and sell its products," MIPS said.

Former Chipidea executives took issue with a decision by MIPS management in July, 2008 to have Franca, president and general manager of the analog business group report to a new COO John Derrick, who headed the processor side of MIPS' business. By August, Franca was gone.

Franca was not available to comment, but former Chipidea employees saw the move as evidence of Chipidea's mistreatment by MIPS. They also pointed out that Derrick left MIPS in January.

MIPS argued that the analog market in general was declining by the fourth quarter of 2007, immediately after it acquired ChipIdea. Some analysts dispute that assertion.

Dublin-based Silicon & Software Systems (S3), which acquired Acacia Semiconductor S.A., a data converter IP developer in October 2007, had a much different view of the market. Acacia was a much smaller analog IP company than Chipidea, and S3 was already in the analog IP business. It licensed its own IP to fabless chip companies. Similar to Chipidea, S3 saw its own analog IP business growing at a compound annual rate of as much as 70 percent between 2004 and 2006.