LSI Logic acquires Agere for $4 billion

Semiconductor manufacturer, LSI Logic, will acquire Agere Systems, creating a combined chip-making company with enough scale to compete for greater market share in segments including hard disks and digital media players.

LSI, of Milipitas, California, will trade stock worth $US4 billion for Agere. The move will push LSI to double its size, growing to 9100 employees and an estimated $US3.5 billion in annual revenue.

LSI hopes to use the deal to extend its market in storage and consumer electronics by adding Agere's expertise in storage, mobility and networking, according to a statement by president and chief executive of LSI, Abhi Talwalkar.

Agere's top 10 customers are Apple, Cisco, Hitachi, Lucent, Maxtor, NEC, Nokia, Samsung, Seagate and Toshiba, according to the company's website.

Those customers use Agere chips in hard drives for laptop and desktop PCs, infrastructure for storage and wireless networks, and cell phone handsets.

By comparison, LSI drew most of its revenue in the past four quarters from enterprise storage, earning $US1.4 billion in sales to customers like Brocade Communications Systems, HP, IBM and Seagate Technology. The rest of LSI's sales revenue included $US312 million from communications and connectivity customers like Alcatel, Cisco and Sony Ericsson, and $US251 million from vendors of consumer appliances such as DVD recorders, including JVC Americas, LG Electronics, Panasonic and Philips.

The two companies will also be more streamlined, saving $US125 million per year starting in 2008 through "increased efficiencies in manufacturing and operating expenses". The companies did not say whether that plan included layoffs.

LSI expects the transaction to close in the first quarter of 2007, pending approval by regulators and by the shareholders of both companies.

The acquisition marks another step by LSI to focus the company on more profitable sectors. In the past seven months, the company has sold its semiconductor manufacturing plant in Gresham, Oregon, and its ZSP digital signal processing unit. With the $US118 million gained from those deals, LSI acquired StoreAge Networking Technologies and Metta Technology.

At the same time, Agere has been struggling to stay afloat. The company recently celebrated fiscal 2006 as its first profitable year as a publicly traded company, and was about to enter the third stage of its turnaround plan, Agere CEO, Richard Clemmer, said in a conference call with analysts regarding the acquisition. By merging with LSI, Agere saw a chance to boost its profits faster than following the rest of its corporate reorganisation.

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Ben Ames

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