Applied Micro Circuits Corp. Acquires IBM's PowerPC Line for $227 Million

Strategic Insights -

San Diego-based Applied Micro Circuits Corp. has made a significant move in the semiconductor industry by announcing a $227 million cash agreement to acquire a line of networking, storage, and consumer application semiconductor designs from IBM Corp. The deal is expected to close by July and will provide about 70 engineers and $20 million in additional revenue in the second fiscal quarter.

Key Takeaways:

  • Applied Micro Circuits Corp. has acquired a line of networking, storage, and consumer application semiconductor designs from IBM Corp. for $227 million in cash.
  • The deal includes the intellectual property and other assets associated with IBM's PowerPC line of products, which are "building block" semiconductor components.
  • The acquired assets include designs used in networking, wireless, and storage applications, as well as intellectual property in the pervasive computing area.
  • The deal is expected to provide about 70 engineers and $20 million in additional revenue in the second fiscal quarter.
  • IBM will keep its high-end PowerPC designs and will manufacture the PowerPC product designs acquired by Applied Micro Circuits Corp.
  • This is the second time Applied Micro Circuits Corp. has bought a piece of IBM's chip portfolio, following its acquisition of IBM's PowerPRS switch fabric products in September.
  • The acquisition is part of Applied Micro Circuits Corp.'s strategy to broaden beyond its roots in communications infrastructure chips and expand its offerings in the enterprise area.

Statistics:

  • $227 million: The cash price of the acquisition.
  • $20 million: The additional revenue expected to be generated in the second fiscal quarter.
  • 70: The number of engineers acquired as part of the deal.
  • 2003: The year in which 10% of the revenue reported by the acquired IBM unit came from chips used in consumer applications.
  • 2 years: The length of time prior to the acquisition that IBM has been pushing to exit the standard product business.

Sources:

  • "Applied Micro Circuits Corp. to buy IBM chip unit" by D. Gelles, The New York Times, April 14, 2004.
  • "IBM sells PowerPC design to Applied Micro" by T. McCarthy, The Deal, April 13, 2004.