The agreement this week by New York City-based analog and mixed-signal chip vendor SMSC (aka, Standard Microsystems) to acquire Conexant Systems (NASDAQ:CNXT-RETIRED) for $284m in cash and stock marks the end of a drawn-out breakup process for the target company. Conexant was formed in January 1999 as a spinoff of the legendary Rockwell Semiconductor Systems, best known for its pioneering desktop calculator chips in the 1960s and modem chips in the 1990s. Rapidly hitting hard times, Conexant was subsequently carved up through a series of smaller spinoffs.
The foundry business was the first to go, as Jazz Semiconductor in March 2002 (Jazz later merged with National Semiconductor spinoff Tower Semiconductor in 2008 to form TowerJazz). The divestment of radio frequency and mobile chips to Skyworks Solutions (NASDAQ:SWKS) was completed in June 2002, followed by the sale of the communications chips business to Mindspeed Technologies (NASDAQ:MSPD) in June 2003 – both are still active. Most of the rest went to NXP Semiconductors (NASDAQ:NXPI) (broadband media processors for $110m in April 2008), Coppergate Communications (home networking, value undisclosed, May 2008) and Ikanos Communications (NASDAQ:IKAN) (broadband access products for $54m in April 2009). SMSC now takes on the final vestiges, consisting of silicon platforms for imaging, audio, fax, embedded modem and video-surveillance applications. The market’s negative reaction to the deal reflects a lack of excitement in these remaindered industry sectors.
However, the fit isn’t without some logic. SMSC’s primary business comes from mixed-signal connectivity chips aimed at personal computers, automotive and portable devices, including USB and Ethernet system on chips. The Conexant IP will broaden SMSC’s activities in the computing, consumer, industrial and automotive sectors; strengthen its relationships with some key joint customers; and boost its analog/mixed-signal R&D team to more than 900 engineers. SMSC has agreed to pay $98m in cash and will issue 2.9 million to 3.6 million shares when the deal closes some time during the first half of calendar 2011. It also takes on $86m in debt. Both boards have approved the transaction.
Founded in 1971, SMSC only became a significant industry force after buying Western Digital’s Ethernet and Token Ring LAN chip business in 1991, paying $33m. The company has been showing healthy organic growth of late, while also seeking opportunities to acquire: Conexant is its fifth deal since July 2009, and by far the largest in its history, adding 600 staff (230 of them in Asia) to its current headcount of just over 900. Combined trailing 12-month revenue would have reached $632m. However, synergies resulting in cost savings of up to $10m are forecast by the fourth quarter of 2012, so cuts appear inevitable.