SAN JOSE, Calif. — Macom bid $770 million for Applied Micro in a deal that aims to sell off quickly Applied’s X-Gene ARM server SoC unit. The deal is a sign the big data centers continue to drive lucrative communications markets aggressively and are not poised to embrace ARM servers in the near future.
Macom believes it got Applied’s “gold nugget” of CMOS comms chips for a bargain at a 15.4% premium in a semiconductor merger frenzy that has seen premiums above 30%. In an indication of the pressure for Applied to cut its losses on its X-Gene ARM server SoC, the mixed cash and stock deal started at a 10% premium until Macom’s stock price rose.
Macom saw Applied’s leadership in the PAM-4 technology needed for 100 and 400 Gbit/second Ethernet as a key prize. The deal also adds to Macom’s telco customer list access to Applied’s network OEM and data center customers including Arista, Cisco, Juniper, Amazon, Facebook and Google.
The deal could add by 2019 $500 million a year to Macom’s addressable market. The company that previously focused on analog RF and optical parts mainly for telecom providers had created a new data center group just last week.
The deal effectively double's Macom's size. (Images: Macom)
Cisco, which represents more than 25% of Applied’s sales, worked with the chip vendor on a proposal for a single-lambda version of PAM-4, recently accepted by the IEEE. The technology is poised for broad uptake in coming waves of 100 and 400G network upgrades for bandwidth-hungry data centers, said John Croteau, Macom’s chief executive in a call with analysts.
Macom also worked with Cisco and Applied on a demo of the PAM-4 approach shown at an event earlier this year. It should emerge as a product this year with revenues in 2017, he said.
Communications is the bottleneck for connecting racks of servers in today’s warehoused-sized data centers of companies like Amazon and Google. So they are expected to drive adoption of the relatively expensive PAM-4 modulation technology which Croteau said should bolster profit margins at Macom.
The deal also gives Macom, which makes most of its parts in compound semiconductor processes, Applied’s capabilities in deep submicron CMOS design. It’s an area where Croteau said he has “battle scars” from his prior Mindspeed acquisition in late 2013.
“We understand the recipe for success there now…we have opportunities in aerospace and defense and array antenna architectures where that competency can be disruptive,” Croteau said.
Next page: Bright but distant hopes for ARM servers