Shift to telecoms as Agere and LSI link up

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LSI Logic’s $4bn merger with Agere Systems and two significant acquisitions by Qualcomm on Monday highlighted consolidation in the semiconductor industry and a shift of focus towards telecommunications.

Silicon Valley’s LSI said it would combine with the Pennsylvania-based Agere Systems in an all-stock transaction, with LSI shareholders owning 52 per cent of the merged company and its name being preserved.

San Diego’s Qualcomm acquired the Bluetooth chip division of RF Micro Devices for $39m and bought Airgo Networks, a Silicon Valley wireless chip start-up, for an undisclosed sum.

Private equity groups have also become involved in the sector. Freescale Semiconductor, a big supplier of chips for mobile phones spun off by Motorola two years ago, accepted a $17.6bn takeover bid in September from a group including Blackstone, Carlyle Group, Permira Funds and Texas Pacific Group.

Intel admitted defeat in its ambition to penetrate the mobile phone market in June, selling its cell-phone processor division to Marvell Technology for $600m.

Marvell will now face a bigger rival as LSI seeks to exploit Agere’s mobile-phone chips and relationship with Samsung while expanding its own hard-drive chip business. Marvell has a 40 per cent market share in hard-drive controller chips for servers.

LSI and Agere combined had revenues of $3.5bn in the 12 months to September 30 and a workforce of 9,100. Agere’s stockholders will receive 2.16 shares of LSI for each of theirs, worth $22.81 for each Agere share, for a total of about $4bn. The offer amounts to a 23 per cent premium to Agere’s closing price on Friday.

LSI shares closed down nearly 14 per cent, or $1.44, at $9.12 on Monday.

Qualcomm’s purchase of Airgo could prove a significant addition to its extensive communications patent portfolio.

Airgo developed a technology known as Mimo (multiple in, multiple out) for transmitting data faster wirelessly using an array of antennae. Mimo is the basis for the 802.11n wi-fi standard being incorporated in the latest computers.

Analysts at Merrill Lynch said they thought Qualcomm’s main motive in buying the division was to beef up its high-speed portfolio and develop faster Bluetooth chips.

Qualcomm shares closed 3.16 per cent, or $1.15, higher at $37.50 on Monday.

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