PLX acquires Teranetics in $36M deal

SAN JOSE, Calif. – PLX Technology, Inc., a designer of PCI bridge and switch chips, has signed a merger agreement to acquire Teranetics, Inc., a developer of physical layer chips for 10 Gbit/second Ethernet over copper.

Under the agreement, PLX will acquire Teranetics in exchange for 7.4 million shares of PLX valued at approximately $27.6 million, cash of approximately $1.3 million and two promissory notes totaling about $6.9 million. PLX will also assume approximately $18 million of Teranetics debt and expenses.

The acquisition has been approved by both companies’ boards of directors. The companies expect to complete the deal in early October.

The deal is likely a win/win, said Jag Bolaria, a senior analyst for The Linley Group (Mountain View Calif.)  Teranetics likely needed more investment before it could be profitable, and PLX needed the technology to expand beyond its core PCI chip business.

The market for 10Gbit/s Ethernet over copper has been slow to ramp, putting pressure on a handful of startups in the field including Teranetics. Investors are likely pressuring the startups, most of which has raised as much as $100 million each, to find an exit via acquisition.

Demand for the so-called 10GBase-T devices "probably won't ramp to significant volumes until the second half of 2012 in tandem with some of Intel Sandy Bridge server platforms," said Bolaria. "By that time large competitors such as Broadcom could be at 28nm and startups may need more money to stay on their process road maps," he said.

PLX is  hungry for growth under a relatively new chief executive and with revenues that have peaked in recent years to about $80 million. With Teranetics it gets access to the leading edge serdes technology in the 10GBase-T devices, something it can apply to a broad range of interconnect markets.

"To date, PLX has licensed high-speed serdes from companies like Gennum, but an interconnect company without its own serdes technology is a difficult play," said Bolaria.

PLX will face big challenges going head-to-head with giants such as Broadcom and Marvell in Ethernet markets, Bolaria said. However, it may apply its new serdes technology to a range of underserved interconnect markets in areas such as Fibre Channel and backplanes, he added.

The Linley Group estimates that more than four million 10G Ethernet ports will ship in 2012, rising to more than 22 million ports in 2014. That compares to more than 200 million gigabit Ethernet ports currently shipping each year.

"PLX is fully committed to this [10GBase-T] market and will continue to invest in future PHYs and other IP to bring high‐performance system‐level products to market," said Ralph Schmitt, chief executive of PLX in a press statement.

Last year, PLX acquired interconnect chip designer Oxford Semiconductor.