Could an acquisition be in the works for Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC)?

Call it the Sycamore theory. Folks like analyst Jeremy Bunting of Thomas Weisel Partners can't help but notice that chip maker AMCC, like Sycamore Networks Inc. (Nasdaq: SCMR), has $1 billion in cash and short-term investments at its disposal. And like Sycamore -- like most companies in telecom -- AMCC needs to find a way to return to growth and profitability.

"You've got to look at AMCC having one of the most robust balance sheets in the industry. They've got money to play with," Bunting says. He's got no specific targets in mind, but he thinks something in the access space -- preferably an established company with profits already -- would be a nice fit.

Assuming AMCC is out shopping, what might the company buy? Something along the lines of a deeply channelized framer might fit the bill, combining AMCC's existing products with a taste for the access market. Possibilities include new names such as West Bay Semiconductor Inc. and Galazar Networks Inc. (see Has West Bay Got the Best Way? and Galazar Unveils Multiservice Framer). There's also Ample Communications Inc., which has announced 10- and 40-Gbit/s framers so far but is expected to delve into DS1 (1.5 Mbit/s) channelization as well (see Ample Crams in the Ports).

Another possibility might be for AMCC to deal for product lines from a larger company, such as Zarlink Semiconductor Inc. (NYSE/Toronto: ZL) or Mindspeed Technologies. Heck, while we're at it, why not make a run at acquiring PMC-Sierra Inc. (Nasdaq: PMCS) or Vitesse Semiconductor Corp. (Nasdaq: VTSS) outright?

An acquisition would be tricky, however, and would not likely to be received well by shareholders. To make it work, AMCC would have to show that the acquisition would add substantial revenues and profitability.

Bunting didn't create this out of thin air. Rather, AMCC officials have been hinting that some changes might be in the works, among them an acquisition or further layoffs. The goal in either case would be to speed AMCC's march to the break-even point. AMCC officials could not be reached for comment on this article.

You could make a similar argument for competitors such as PMC-Sierra, but they don't have AMCC's cash horde, Bunting says. And looking at PMC specifically, the situation seems less dire, possibly because the company underwent reorganization pains last year (see PMC-Sierra Pulls Packet Silicon). For the quarter ending Sept. 30, AMCC reported losses of $72.4 million on revenues of $30.2 million; PMC for the same quarter reported losses of $9.2 million on revenues of $59.6 million.

Of course some analysts wouldn't be surprised if AMCC chose to salt its money away. "I could say that, given that you're going into a nuclear winter, you should hold onto the cash," says Arnab Chanda, analyst with Lehman Brothers.

That's apparently been the strategy for Sycamore, whose $1 billion bankroll has placed it on several analysts' Most Eligible Bachelor lists (see Is Sycamore Startup Hunting?). Ciena Corp. (Nasdaq: CIEN) has found itself in the same boat, a situation that had investors peppering CFO Tom Mock with questions at a recent conference (see Will Ciena Put Cash to Use?).

Another member of the $1 billion club is JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU), which is carrying roughly that much cash with no long-term debt. "AMCC and JDS are in similar situations -- they're having to lower their break-even number," Bunting says.

— Craig Matsumoto, Senior Editor, Light Reading
www.lightreading.com

Movers and shakers from more than 100 companies will be speaking at LightSpeed Europe. Check it out at http://www.lightspeedeurope.com.