Comms chips

AMCC Takes Quake

Post-bubble survivor Quake Technologies Inc. got rewarded for its perseverance yesterday, as Applied Micro Circuits Corp. (Nasdaq: AMCC) announced a $69 million deal to acquire the company.

Quake, which makes physical-layer (PHY) chips for 10-Gbit/s optical transceivers, employs just more than 50 people. Nearly all the employees are expected to join AMCC, says Mitch Kahn, Quake's vice president of marketing. (See AMCC Acquires Quake.)

Quake CEO Daniel Trepanier would join AMCC and report directly to CEO Kambiz Hooshmand. The deal is expected to close this month.

It's an awkward time for AMCC to make an acquisition, given the company is in the throes of the stock-options scandal and therefore isn't releasing full earnings reports. But the all-cash deal is easily affordable, judging from the $336 million in cash and equivalents carried on AMCC's March balance sheet.

Founded in 2000, Quake builds chips targeting the 10-Gbit/s carrier metro market as well as shorter-reach enterprise and data center applications. The company raised $60 million during its lifetime, Kahn says -- half of which came in a 2001 round that included Cisco Systems Inc. (Nasdaq: CSCO). (See Why Cisco Likes Quake.)

Among Quake's favored targets is the XFP format -- a smaller module considered a high-end play in Quake's early days. With XFP getting its first taste of the mainstream, Quake has already started moving on, producing a chip for the even smaller and cheaper SFP+ format for 10-Gbit/s Ethernet and Fibre Channel modules. (See Lower Prices Boosting 10-GigE and XFP Module Gets a Shrink.)

The acquisition gives AMCC a quick entry into those markets, as well as Quake's chips for enterprise interfaces such as the LX4 standard for transmitting Ethernet across short distances of older fiber. (See Vendors Still Driving LX4.) Quake gets the backing of a larger company, likely accelerating its ability to secure new customers, Kahn says.

Kahn wouldn't comment on whether Quake was profitable.

Yesterday also happened to be the scheduled date for AMCC's first-quarter earnings update. The company declined to give out net income data due to the stock-options investigation, and yet the news was good, as revenues of $69.7 million edged out analysts' consensus estimate of $68.9 million, according to Reuters Research .

Boosted by its "highest quarterly booking level in five years," AMCC expects revenues to increase 5 to 8 percent in its second quarter, Hooshmand said on yesterday's earnings call with analysts. That would put AMCC's second-quarter revenues between $73.2 million and $76.7 million, surpassing the analyst forecast of $71.2 million.

In a Securities and Exchange Commission (SEC) filing yesterday, AMCC also noted that the U.S. Attorney for the Northern District of California apparently is choosing not to continue an investigation into AMCC's past stock-option practices. But the filing added that the U.S. Attorney for California's Southern District is keeping its AMCC investigation alive.

AMCC stock was up 12 cents (5%) at $2.50 in after-hours trading.

— Craig Matsumoto, Senior Editor, Light Reading

Mark Sebastyn 12/5/2012 | 3:45:56 AM
re: AMCC Takes Quake Kahn didn't comment on whether Quake was profitable... but listeners to the conf call last night know. $2M in revenue for quarter ending Sep '06 with operational expenses in the range of 3-4M.

That would be NOT PROFITABLE.

Full analysis here.

Pete Baldwin 12/5/2012 | 3:45:53 AM
re: AMCC Takes Quake OK, I think I can understand the math there... thanks for chiming in Andrew. I didn't get a chance to listen to the entire call yet.

Given it's an $8M run rate, you wonder (as Andrew infers on his site) whether AMCC could have done this more cheaply... and whether they needed to do it at all.

Obviously the market is going to grow, and Quake claims to have the lion's share of it right now. Maybe AMCC sees the numbers panning out in a couple years... or maybe there's some bigger plan to integrate Quake with something? (Or, maybe I'm just flailing here for the sake of conversation....)
chips_ahoy 12/5/2012 | 3:45:50 AM
re: AMCC Takes Quake "Obviously the market is going to grow..."

This is true, but will Quake's revenue continue to grow? They've already lost significant business to Aeluoros at Finisar and Opnext. Their technology is clearly not best in class as they have struggled with the move to CMOS.

Random gossip: MRVL to buy Aeluros?
Pete Baldwin 12/5/2012 | 3:45:50 AM
re: AMCC Takes Quake Excellent point, chips. Aeluros does talk about being a leader with the X2 generation of modules, while Quake had its day in Xenpak, so the tides may be turning.

With Quake getting bought, I can easily see Aeluros going too. With Marvell, though, I'd wonder if they wouldn't prefer to just build the stuff themselves?
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