Lattice to Buy Agere FPGAs

The $250 million cash transaction may not result in immediate benefits

December 10, 2001

2 Min Read
Lattice to Buy Agere FPGAs

Lattice Semiconductor Corp. has agreed to buy the FPGA (field programmable gate array) business of Agere Systems (NYSE: AGR) for $250 million in cash (see Lattice Semi to Buy Agere FPGA Biz). Analysts say the move is fairly neutral, given the current downturn in the semiconductor market, although it could ultimately turn positive all around.

Analysts say FPGAs are expected to be among the fastest-growing elements of the semiconductor business for the next few years. FPGAs offer a cheaper alternative to ASICs (application-specific integrated circuits) while performing better than network processors, since once programmed, the chip instructions are effectively hard-wired. On the downside, FPGAs can't match the performance of ASICs and aren't as easily upgraded as network processors.

Lattice's purchase of Agere's FPGAs will speed up its own developments and result in product delivery in the first half of 2002, spokespeople say.

The deal is expected to close in the first quarter 2002. It will result in the transfer to Lattice of all intellectual property and patents for Agere FPGAs. Included are a series of FPGAs used in optical networking gear, such as a backplane transceiver chip adopted by Astral Point Communications Inc. (see Astral Point Selects Agere Chip) and 10-Gbit/s Ethernet chips sold to Extreme Networks Inc. (Nasdaq: EXTR) (see Extreme Chooses Agere Chips).

About 100 Agere employees in a variety of departments will also join Lattice. About 80 of these staffers are presently located in Allentown, Pa., another 10 in Boulder, Colo., and 10 or so in Naperville, Ill. Lattice says it will set up offices to accommodate these employees wherever Lattice doesn't already have space available.

On the downside, analysts say Lattice has taken its time about the move. "This should have happened two quarters ago," says analyst Hans Mosesman of Prudential Securities. As it is, Lattice may have reduced its ability to benefit substantially from the deal in the near term.

Both companies are facing difficulties. In its third-quarter results reported October 22, Lattice announced revenues of $58 million, down 61.6 percent year over year and 21.7 percent sequentially. The company also showed negative EBITDA (earnings before taxes, depreciation, and amortization) of roughly ($0.80) per share, resulting in part from the ongoing writedown of goodwill from a previous acquisition. Lattice says it's still profitable and that without the goodwill, its EBITDA would be a gain of about $0.07 per share. Lattice hasn't had any layoffs so far.

Agere says the move is part of its ongoing restructuring efforts, which included the layoff of 950 employees last month (see Agere Announces More Layoffs) and has forced the company to "sharpen its strategic focus" by consolidating its manufacturing sites and exhaustively reviewing its product portfolio.

Agere will use the cash to pay down its debt, but the transaction won't affect the ongoing resolution of its spinoff from Lucent Technologies Inc. (NYSE: LU).

— Mary Jander, Senior Editor, Light Reading

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