Irvine’s Microsemi Corp. is starting to see the payoff of its latest buy.
The company wrapped up its $245 million acquisition of publicly-traded Israeli chipmaker Pow-erDsine Ltd. in January.
It also scored a design win from Cisco Systems Inc. a month later,thanks to PowerDsine.
“Microsemi has secured the long-awaited design win,” said analyst Rick Schafer of CIBC World Markets Inc. in New York, in a research note. “The companies existing relationship with Cisco, solid balance sheet and strong support capabilities were key to pushing the ball over the goal line.”
Investors are pleased. Shares are up nearly 30% since February. Microsemi counted a recent market value of $1.6 billion.
Smooth Process
The integration of PowerDsine has been a relatively smooth process, said Steve Litchfield, executive vice president and head of Microsemi’s analog and mixed signal group.
“We’ve been pretty aggressive in putting everyone together,” he said. There’s been a lot of travel back and forth and lots of phone calls at odd hours.”
Microsemi picked up PowerDsine, based in Hod HaSharon just north of Tel Aviv, in a cash and stock deal. It’s kept the name and company’s offices,also in San Jose and Melville, N.Y.,pretty much intact.
At the time of the deal, PowerDsine counted about 136 workers, mostly engineers. Many joined Microsemi, but remain in Israel.
Some Israeli executives from PowerDsine also were folded into Microsemi’s newly formed analog and mixed signal group, which counts about 300 workers.
PowerDsine’s chips are designed for what’s called “power over Ethernet,” which sends power over computer networking cables, cutting the need for separate energy supplies for routers, switches and other devices. The chips are seen as a way to cut costs of installing a network for computers and other devices such as security cameras.
Some of PowerDsine’s biggest customers are schools, including the University of Buffalo, University of Utah and Purdue University.
Big Win
The Cisco win is huge for Microsemi and PowerDsine. A main rival is Milpitas-based Linear Technology Corp., which PowerDsine had been competing with for Cisco’s business.
Smaller competitors include Sunnyvale’s Maxim Integrated Products Inc., which has a tech center in Irvine and a sales office in Costa Mesa, San Jose-based Monolithic Power Systems Inc. and Santa Clara-based O2Micro International Ltd.
Microsemi stands to have the majority of the power over Ethernet market now.
“The company is aggressively investing in (the power over Ethernet) segment to drive pretty hard ahead of our peers,” Litchfield said.
Cisco has roughly three-fourths of the market, according to Schafer.
Before the Cisco deal, “PowerDsine had secured nearly the entire non-Cisco power over Ethernet market,” Schafer said. “Cisco was not only the last PowerDsine holdout, but also the biggest.”
Schafer said he estimates that PowerDsine has a total of about 250 design wins in the market, with about 100 of those in actual products.
PowerDsine had pushed for a Cisco deal for four years, according to Schafer.
The win has helped put Microsemi back in investors’ good graces, after the company lowered its sales and earnings outlook for its October quarter. It cited weakness in some of its markets and slower chip sales.
Then came better news,Cisco.
Microsemi posted a loss of $19.6 million in the April quarter, versus a profit of $13.6 million a year ago. It cited charges of $43 million related to the PowerDsine buy, plant closures and “idle capacity.”
Sales for the quarter were up 26% to about $107 million, compared to a year ago.
Investors shook off the news, focusing on a rosier outlook for the current quarter.
The company expects a profit of $14.4 million to $16.5 million.
Schafer raised his target stock price for the company to $32 a share, up from $26.
Microsemi, which was founded in 1960, makes chips that power satellites, military aircraft, medical equipment and flat-screen televisions, among other things.
It makes chips at its own factories, unlike other Orange County companies such as Irvine-based Broadcom Corp. and Newport Beach-based Conexant Systems Inc., which outsource manufacturing.
“Over the last three years we have gotten very aggressive on operational efficiency,” Litchfield said. “We had about 10 facilities and now we have about five.”
The company has factories in Garden Grove, Scottsdale, Shanghai and two plants in Massachusetts.
Microsemi counts about 1,820 workers in all.
