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AMCC Powers Up

Could it be Intel envy?

Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC) is acquiring assets related to IBM Corp. (NYSE: IBM) microprocessors, a move that could let AMCC's network processors match the integrated offerings of Intel Corp. (Nasdaq: INTC).

AMCC is acquiring intellectual property and assets related to IBM's PowerPC 400 line of microprocessors for $227 million in cash, the companies announced today. The deal includes an option for AMCC to buy $5 million more in IBM assets (see AMCC Pays $227M for IBM IP).

AMCC expects to pick up 70 IBM employees as part of the deal, which is expected to close before June 30.

This marks AMCC's second deal with IBM's chip organization. The first was the acquisition of IBM's switch fabric operations, including a design team based in France (see AMCC Switches On IBM's Fabric).

It's worth noting AMCC is not gaining control of the PowerPC chips used in the Apple Computer Inc. (Nasdaq: AAPL) Macintosh.

While AMCC is acquiring a line of chips -- the PowerPC 403, 405, and 440 -- the parts can also be used as "cores," processor designs intended to fit inside ASICs. IBM retains the rights to the PowerPC 400 intellectual property, meaning the company will continue using the parts inside ASICs.

All told, the PowerPC 400 line garnered $55 million in revenues in 2003, IBM estimates. In its first full quarter under AMCC, which will end in September, the PowerPC designs could bring in $20 million in revenues, said AMCC chief financial officer Steve Smith on a conference call this morning.

AMCC can use the PowerPC alongside its storage chips, but the most promising application will be to integrate the PowerPC with a network processor, creating an all-in-one chip. "What we're talking about is perhaps getting into some integrated products in the future," said Tom Tullie, general manager of AMCC's WAN business, on the conference call. AMCC isn't yet giving a timeframe for the integrated products.

The integration would create a double-teaming effect: The network processor would continue to work the data plane, reading and modifying packet headers, while the PowerPC could handle the control-plane duties such as running an operating system. Intel already does this, packing an XScale microprocessor into its newer network processors. The acquisition "allows AMCC to align more with what Intel is doing," says Linley Gwennap, principal of research firm The Linley Group.

The lack of an integrated control-plane processor hasn't hurt AMCC in the market, but it's certainly a welcome addition to the company's arsenal. "It's going to be a bigger issue in the future, because people are always looking at integration and lower cost," Gwennap says. That trend is intensifying as network processors lean more toward access and edge markets, cost-sensitive areas where chip integration is a selling point (see Net Processors Aim for Access and Chip Startups Process Profitability).

To help pull off this integration, AMCC is getting access to IBM's chip foundry and design methodology as part of the acquisition. That's no small potatoes, as IBM is counted among the most advanced chip-building operations in the world.

AMCC isn't alone in acquiring a general-purpose microprocessor; Broadcom Corp. (Nasdaq: BRCM) and PMC-Sierra Inc. (Nasdaq: PMCS) picked up SiByte Inc. and Quantum Effect Devices Inc. (QED), respectively, in 2000. Both of those chips use the MIPS architecture, a competitor to PowerPC, and they've dominated the market for high-end, standalone control-plane processors. (See Broadcom's on a Buying Spree, PMC Intros MIPS Processors, and Control Plane Envy.)

— Craig Matsumoto, Senior Editor, Light Reading

opticalwatcher 12/5/2012 | 2:03:31 AM
re: AMCC Powers Up 1. "It's worth noting that the parts acquired aren't actually chips."
2. "...not gaining control of the standalone PowerPC chips used in the Apple Computer Inc."

I think the second statement is correct but the first statement is not. I think it covers IBMs embedded 4xx family, but not its desktop 750, 970 family of chips.

Can you guys (at Lightreading or IBM or AMCC) confirm this?
opticalfuneral 12/5/2012 | 2:03:21 AM
re: AMCC Powers Up LR has it half wrong. They are buying cores AND chips. And I would think Motorola/Freescale is the real competition, not Intel.
opticalwatcher 12/5/2012 | 2:03:17 AM
re: AMCC Powers Up So given AMCC's extensive experience in the embedded market (I am being facetious), is IBM just handing over the embedded Power PC market to Motorola?
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