Orange County Business Journal

Mindspeed Buys UK Chipmaker, Lowers Q1 Revenue Target

Chris Casacchia Thursday, January 5, 2012

News of Mindspeed Technologies Inc.’s pending buy of a U.K.-based chipmaker is overshadowing its earlier announcement Thursday that it lowered its revenue outlook for the December quarter.

Investors sent Mindspeed shares up more than 10% in early afternoon New York trading on the mixed news to a market value of about $177 million.

On Thursday morning, the Newport Beach-based networking chip maker lowered its guidance on revenue in the December quarter to about $33 million, down from its previous target of $35.9 million to $37.5 million.

Wall Street analysts on average are projecting sales of about $36 million.

Mindspeed also lowered its gross margin target to 58%, down from November’s guidance of 60% to 62%.

The lowered expectations were prompted by “weaker demand” and “a slower work-down of inventory levels,” according to Chief Executive Raouf Halim.

Minutes after that announcement, Mindspeed said it planned to buy Picochip Ltd. for $51.8 million, with a potential earnout of up to $25 million−paid in the first quarter of 2013−if certain benchmarks are met.

The deal has been approved by Mindspeed and Picochip's boards and is expected to close this quarter.

The acquisition is projected to positively affect Mindspeed earnings in the second half of the year, executive said.

Picochip makes systems-on-chip for small cell base stations, an explosive growth market as the race to 4G supremacy plays out among the nation’s largest wireless carriers.

Campbell-based research firm Mobile Experts LLC predicts small cell base station shipments will grow to 24 million units by 2016.

The deal also increases scale, boosts Mindspeed’s addressable market to $3 billion by 2016 and provides crosselling opportunities with each company’s customer base, executives said.

Picochip said it controls about 70% of market share in the 3G high-speed packet access small cell infrastructure market.

High-speed packet access helps improve speed while supporting more users on a network.