Microsemi Prepares for Expected Lift From PMC

Microsemi Corp. has wasted little time in initiating its game plan after buying chipmaker PMC-Sierra Inc. for $2.5 billion.

Top executives at the Aliso Viejo-based company recently traveled to Santa Clara, near PMC’s Sunnyvale headquarters, to craft an integration plan, and then to New York, where they met with investors to market the $2.7 billion in new debt used to finance its priciest deal to date.

The mixed debt, stock and cash bid had drawn concerns from PMC board members, who rejected two prior proposals in favor of an all-cash offer from Apple supplier Skyworks Solutions Inc. in Woburn, Mass., contending it provided “more value certainty to PMC stockholders” at the time.

Microsemi raised its bid from roughly $2.4 billion to secure the deal.

“It’s a great strategic fit for us,” Microsemi’s vice president of corporate development, Rob Adams, told the Business Journal. “We have a lot of synergies in terms of our [communication] group, and it really jumpstarts our effort in the storage arena.”

Storage products accounted for about 70% of PMC’s $525.6 million in revenue last year. Customers include some of the world’s largest big-data aggregators, such as search giant Google Inc., Hewlett-Packard, and data center builder and business software maker EMC Corp., which in October agreed to a record-breaking $67 billion sale to Dell Inc.

PMC’s hardware products are designed for server applications, essentially acting as controller traffic cops in data transmission, according to Adams.

Microsemi has made significant strides in the past eight years, evolving from an aerospace and defense specialist into a diversified chipmaker with offerings for the budding Internet of Things and automotive markets, plus expertise in timing and synchronization, weapons and contraband screening systems, power supply, and Ethernet and broadband infrastructure.

Buys

Its efforts to penetrate the growing enterprise storage segment through last year’s buy of Santa Rosa-based chipmaker Centellax Inc. on undisclosed terms and April’s $389 million deal for Vitesse Semiconductor Corp. in Camarillo haven’t materialized quickly enough to make an impact in the fast-moving tech sector, though.

Centellax makes high-speed and RF chips and related components for the optical communications and Ethernet data markets. Vitesse specializes in high-performance chips, application software, and integrated turnkey systems for global telecom carriers, enterprise, and Internet of Things networks.

Adams described Microsemi’s position in enterprise storage as “negligible,” an unenviable designation that should change immediately, with PMC competing for the market share lead against Broadcom Corp. acquirer Avago Technologies Ltd. in Singapore.

“The great thing about the storage space is the competitive dynamics,” Adams said. “It’s largely us competing against LSI.”

He referred to San Jose-based LSI Corp., which Avago acquired last year for $6.6 billion.

Avago’s $37 billion takeover of Irvine-based chipmaker Broadcom is expected to close within weeks.

Microsemi projects that the PMC transaction would lead to $100 million in annual cost savings and a $57.2 million profit boost in the first 12 months after the deal closed.

It’s likely that many top PMC executives won’t join Microsemi when the deal closes, given the company’s history in rolling up companies.

Industry sources say PMC’s 85,000-square-foot headquarters in Sunnyvale, which houses its U.S. design, engineering, sales, marketing, and administration personnel, will lose multiple jobs and consolidate with Microsemi’s sizeable operations in Northern California.

PMC entered the year with 1,442 global employees: 882 in research and development; 103 in production and quality assurance; 299 in sales and marketing; and 158 in administration, according to its annual report.