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Avago-LSI merger represents 150 years of chip innovation

Posted: 20 Feb 2014  Print Version  Bookmark and Share

Keywords:Avago  LSI  semiconductor 

The electronics industry embodies a rich narrative that illustrates how companies are birthed, get bigger, produce spinoffs, die in bankruptcy or acquisition, and are then reincarnated. One classic example is the proposed multi-billion-dollar union of two semiconductor companies.

Avago Technologies Ltd. announced last December that it would purchase LSI Corp. for $6.6 billion. These companies each has an historically significant lineage.

Avago traces its roots back 50 years to Hewlett-Packard Co. Launched in 1961 as a division of HP, the component unit specialised in silicon, germanium, and gallium arsenide diodes for HP's test systems. It pioneered the market for LED displays and later expanded into fibre-optic transmitters, optical mouse sensors, and other equipment.

In 1999, HP announced a strategic realignment to focus on computing, printing, and imaging. The company spun off its test and measurement, component, chemical analysis, and medical equipment businesses as Agilent Technologies. Later that year, Agilent went public, raising more than $2 billion in what was then the largest IPO in Silicon Valley history.

In 2005, the private-equity firms Silver Lake Partners and KKR & Co. bought Agilent's semiconductor products group for $2.66 billion. The group, which the new owners renamed Avago Technologies, was the world's largest privately held independent semiconductor company. In 2009, the owners took Avago public, raising $648 million. In April 2013, Avago acquired CyOptics Inc., a maker of fibre-optic components.

Avago's bride in the latest deal was founded in 1981 as LSI Logic Corp. by Wilfred J. Corrigan, who had worked at another Silicon Valley patriarch, Fairchild Semiconductor. LSI pioneered gate arrays, standard-cell ASICs, and the SoC business. Corrigan served as CEO until 2005. His successor, former Intel executive Abhi Talwalkar, changed LSI's strategic direction; in 2006, he orchestrated its acquisition of Agere Systems Inc. for $4 billion. That move helped LSI expand into the market for standard chips and the networking business.

Agere also had a royal lineage. In 2002, it spun off from Lucent Technologies, which itself spun off from AT&T in 1996. As part of the 1996 deal, Lucent got ownership of AT&T's R&D powerhouse, Bell Labs. The labs were founded in 1925, and over the years its researchers have won seven Nobel Prizes. In fact, the Bell Labs facility in Allentown, Pa., was the site of the first production line of transistors.

Now, two storied semiconductor companies will merge, assuming all goes as planned. (Avago hopes the transaction will be completed by July.) Today LSI's main business is in storage, specifically hard disc drives, storage networking, and solid-state drive chips. Avago has a strong business in base station and mobile handset RF chips (it supplies them for iPhones) and optical components. The combination would create a chip company with $5 billion in revenue and a broader portfolio of communications and networking chips. "The combined company will be strongly positioned to capitalise on the growing opportunities created by the rapid increases in data centre IP and mobile data traffic," Avago said in announcing the transaction.

This is a union of families whose ancestors represent 150 years of some of the biggest innovations in electronics. I wonder what kind of ingenious children would come out of this marriage.

- Tam Harbert
  EBN Online





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