SimpleTech, Viking Components Go It Alone For Now
It could have been a fitting match. Now it’s not even a match.
Santa Ana-based SimpleTech Inc., which had been weighing a bid for fellow Orange County computer memory products maker Viking Components Inc., said it’s pulled back from any deals in the wake of the Sept. 11 terrorist attacks.
“We’re putting the whole acquisition strategy on hold for now. This could be a longer-term issue,” said SimpleTech Chief Executive Manouch Moshayedi. “With this attack, we’re going to be conserving cash.”
Company executives had talked about going through with the acquisitions. As of June 30, SimpleTech had $41 million in its coffers and little debt. SimpleTech also is among the few publicly traded memory companies. Last week, SimpleTech counted a market value of $55 million.
With a new uncertainty in the wake of the attacks, SimpleTech said it is opting to sit on its cash for now. The company isn’t planning any layoffs, according to Moshayedi. And the decision to pass on Viking and any other company should help ensure that doesn’t happen, he said.
That suits Viking just fine, say executives at the Rancho Santa Margarita-based company. Last month, Viking said it had landed it a credit line with CIT Business Credit, part of the financial services arm of Tyco International Ltd. The financing should help Viking go it alone, according to Glenn McCusker, the company’s founder and co-chief executive.
“A lot of companies came to look at us,” he said. “What I found through this whole exercise is that we’re a strong company.”
Like other memory companies, Viking has found itself grappling with slimming profits and a large inventory of memory boards, thanks to the downturn in PCs and networking gear.
Before things hit bottom, McCusker said he was planning a possible initial public offering. In preparation, McCusker in January granted 20 million stock options to employees so they would benefit from the company’s offering or a possible sale.
“That’s why I granted my employees the options in the first place,” said McCusker, who owns the lion’s share of Viking.
Things came to a head in the first quarter when Viking was forced to lay off 330 out of 600 workers. Soon after, McCusker signed on Los Angeles investment bank Murphy Noell Capital LLC to help him weigh alternatives.
McCusker said he considered everything from a public offering to private placement financing, but said he found investor sentiment cold.
Then McCusker said he started looking hard at selling the company. Though he said his own pride had kept him from considering earlier bids, McCusker said he started to field calls from suitors in March. Viking executives wouldn’t disclose who they talked with.
“Five years ago was also a time of consolidation, and I didn’t want to do a merger then,” McCusker said. “I felt I owed it to my employees,the stockholders,to bring them the most value.”
But industry observers say another shakeout is inevitable in the memory business. Not only are companies dealing with slower sales, but their profits on mainstay dynamic random access memory modules,which make up the majority of both SimpleTech’s and Viking’s sales,have been squeezed.
“The (memory) industry has already lost the momentum to sustain positive revenue growth this year and in 2002, as the market enters an earlier-than-expected bust cycle,” International Data Corp. analyst Soo Kyoum Kim said earlier this year. “The stage is set for another market restructuring, with the winners and losers clearly being identified over the next year.”
Like the broader technology sector, the memory market goes through ups and downs, with periods of rapid growth followed by contraction. As PC sales plunged in the past year amid the broader economic slowdown, memory companies have been forced to cut prices,and forsake profits,on memory modules, the circuit boards that house memory chips.
While SimpleTech said it has put off shopping for now, a deal for Viking still could make sense when the market turns.
SimpleTech has looked to sell higher-margin flash memory products,used in digital music players and cameras, as well as in networking gear.
SimpleTech recently struck a deal with Hitachi Ltd. to sell flash products and has tried to boost its product line, something Viking already has done.
Viking’s manufacturing muscle also is a lure. Viking committed an entire factory in Ireland to producing generic computer memory. Viking hoped such a strategy would allow it to land more deals with computer makers needing fast access to memory products.
And McCusker said he’s keeping his options open. The company plans to keep Murphy Noell to help it consider acquisition offers and other issues, he said.
“Do you ever stop (looking for a buyer)?” McCusker asked. “You have to do the right thing.” n
