Microsemi Corp.’s recent move to exit an aging product line underscores an ongoing consolidation plan to shed noncore assets and unneeded real estate after years of frequent acquisitions under Chief Executive Jim Peterson.
The Aliso Viejo-based company’s latest step is a deal to license its detector log video amplifier products—an analog-based technology that’s a small niche in Microsemi’s overall sales—to Microphase Corp. in Norwalk, Conn.
Folsom to Camarillo
Microsemi will move operations and some employees from its Folsom property, which will be closed, to a facility in Camarillo. An unspecified number of employees at Folsom will be let go.
The deal calls for the licensing to run for one year before Microsemi exits the business, which is seen as being gradually replaced by digital applications.
The detector log product line accounted for about $10 million of the estimated $50 million in revenue generated from the Folsom operation.
The consolidation to Camarillo is projected to cut costs for the company by $2 million to $4 million annually.
The initiative is part of the larger plan “to lean the real estate footprint, cut costs and improve operating margin,” according to Rob Adams, vice president of corporate development.
Microsemi reported an adjusted operating margin of 22.9% in the December quarter, up from 21.5% a year earlier.
Step Applauded
• Headquarters: Aliso Viejo
• Business: Chipmaker
• Founded: 1960
• Ticker symbol: MSCC (Nasdaq)
• 2012 revenue: $1 billion
• Recent earnings: $14.2 million for December quarter
• Market value: About $1.9 billion
• Notable: Continues divesting noncore assets, including real estate
Stifel, Nicolaus & Co. analysts applauded the step, which is pegged to have no “material” impact on revenue.
“We believe this move by the company highlights management’s continued focus to improve its core business, exit businesses or products that may represent lagging technology, and expand in areas where it can meaningfully grow and improve its levels of profitability,” the St. Louis-based investment bank said in a recent investor note.
Microsemi is Orange County’s second-largest chipmaker and passed the $1 billion mark in revenue last year. Sales grew significantly in the past three years amid a roll-up strategy centered on cash buys of smaller competitors with sales between $10 million and $50 million.
Buys
It also closed some bigger acquisitions over the same period, including a $430 million buy of Mountain View-based Actel Corp. in October 2010, its biggest deal to date at the time.
That was trumped by the $633 million hostile takeover of Toronto-based chipmaker Zarlink Semiconductor Inc. a year later.
Microsemi has acquired at least seven companies since mid-2010, strengthening its position in the timing and synchronization, defense, communications and aerospace markets. Its chips are built into defibrillators, digital televisions, drones, pacemakers, satellites and other devices.
Customers include Cisco Systems Inc., Boeing Co., Hewlett-Packard Co., Dell Inc. and Samsung Electronics Co.
Microsemi also is considering offshoring manufacturing to its factory in the Philippines and consolidating properties in Massachusetts, moves projected to cut expenses by at least $10 million annually.
“There never should be an end to consolidation—you have to focus on efficiencies,” Peterson said. “We’re exiting products and businesses that don’t fit our long-term business model.” n
