The ongoing wave of consolidation in the semiconductor sector is geared at gaining scale in two key areas of investment – carrier infrastructure and internet of things (IoT) devices and hubs. However, it is also creating confusion in the core landscape – Intel acquired two ARM-based units, LSI’s Axxia and Mindspeed’s Picochip, for its network processor push; now Microsemi is buying Vitesse Semiconductor, bringing a MIPS-based cuckoo into its ARM nest.
The proposed acquisition is valued at $389m or $5.28 per Vitesse share, a 36% premium over its closing price on Tuesday. However, the firm has until April 8 to solicit a counter-bid, if it chooses, under the terms of the deal.
If the transaction goes ahead, Microsemi says it will have greater scale and a more diverse product offering for its key market, communications semiconductors, within which it is focusing on “carrier, enterprise and industrial IoT markets”. The company has other activities, notably in chips for satellites, aircraft and security systems, but its future growth will come mainly from communications, according to CEO James Peterson. In its last fiscal year, 36% of its revenue came from communications, 28% from defense and security and 23% from industrial, but the firm aims to increase the first of those percentages in the current year.
Its differentiation lies in its focus on high reliability, using configurable microcontrollers, and its own memory and ASIC solutions. It hopes to apply some of that robustness to more general purpose segments, like industrial IoT, which will nevertheless be very mission critical.
Meanwhile, the main jewel in Vitesse’s dowry is its Ethernet platform. It bills itself as an ‘Ethernet Everywhere’ enabler for carrier and enterprise applications, offering switch-chips for backhaul, mobile base stations and other aspects of the carrier network, and recently it has made a significant push into the emerging market for industrial IoT systems, as well as into top end Ethernet sectors such as trunk line communications. It also offers applications, services and network design support.
Its CEO, Chris Gardner, said in his statement: “I believe Microsemi will be able to leverage Vitesse’s Ethernet technology and capabilities further into the communications market and has the scale to implement the adoption of our industrial IoT strategy.”
The Ethernet market is highly competitive and there were indications that Vitesse was struggling to stay afloat, while Microsemi, with its presence in specialized and high value markets such as defence and aerospace, may be able to leverage the technology more effectively in well targeted segments, rather than battling it out in the mainstream.
This potential will be limited while the companies’ architectures remain different, however, and MIPS’ owner Imagination Technologies is likely to be fearful that this will be another supporter lost to the ARM platform, which is expanding rapidly in the IoT space, as well as network infrastructure. Microsemi’s line is based on ARM Cortex-M microcontroller cores but as Intel has acknowledged – saying it has not set any timeline to convert Axxia to x86, and may never do so – it is no simple matter to switch to a new core IP.
While the MIPS processors used by Vitesse suit that firm’s target applications because they are optimized for code density and high data throughput, Microsemi is focused on the low power that the ARM architecture promises. Maintaining two product lines may be essential, for the time being at least, to keep customers happy and avoid compromising on performance, but it limits the economies of scale and the pooling of talent, which a single platform would enable.
Microsemi was founded in 1960 and Vitesse in 1984. The deal is expected to close in the second quarter. Microsemi’s last acquisition was of network synchronization specialist Symmetricom in 2013.