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So what’s with Actel-Microsemi?
Here in Silicon Valley this week I found a lot of people were wondering why Microsemi, a military supplier, would want Actel.
First reason was Microsemi got it cheap. Purchase price for Actel’s $200 million of annual revenues was $430 million net of Actel’s $160 million cash. The per share acquisition price of about $21 compares favourably to the pre-bid share price of about $16.
Second, Actel has anti-fuse – a good technology for robust, high-spec, rad-hard parts wanted by the military – but a technology which Actel has not developed for some years.
Third, Actel has rad-hard, military qualified, high-spec, flash-based FPGAs. The flash parts also sell into the industrial market. This will be good margin business and Actel has just finished development of an industry-leading 65nm embedded flash process with UMC which gives this business plenty of future head-room.
Fourth, Actel has flash-based consumer-oriented FPGAs like Igloo. Here it competes with Xilinx, Altera and others.
It can be assumed that Microsemi would find value in 1,2 and 3 but maybe not so much in 4.
Many were bemused by the conference call which gave the impression that Microsemi were confused about their intentions for the Actel product lines.
What will Microsemi do with the flash-based consumer parts? It’s unclear.
The Microsemi CEO won’t be the first CEO to have made an acquisition while being fuzzy on the reasons for it.
Sitting with a group of Altera guys it was natural to ask if they might buy the flash-based consumer FPGA line off Microsemi if it’s for sale. Their faces immediately went into poker mode. Lips were well and truly sealed.
For the programmable logic industry as a whole it will probably be quietly satisfying to see a rival taken over by an acquirer which lacks a clear strategy for the acquisition.
Yes, Stephen, I always thought John East did a fine job keeping Actel on the straight and narrow where so many went by the wayside
David,
As the guy who set up the original Actel sales and distribution network in Europe back in ’92 I’ve always been interested in their subsequent progress. They were the third entrant into the programmable logic market and have always struggled against the other two, hence the attraction of the military market with the antifuse technology to boost revenues. Overall I’m surprised they have lasted so long!
It may also be that Microsemi has an accurate pulse of the Aerospace side of the equation. While the future of the Federally-Funded Space Program is nebulous, there is much activity on the Commercial Space frontier. Actel’s proven product lines will appeal to those looking for chips good enough for Space applications without the added cost of the data package and Rad Hard development. A Quasi-Commercial application…
Thanks Robert that’s a very interesting insight.
David, If memory serves me correctly Actel gets about 1/2 it’s revenue from Military/Aerospace less than 1/4 of their revenue is in any cost sensitive consumer areas.
Actel’s problem is that engineering and SG&A expenses are killing the profitability, If the merger only reduces SG&A to half the current level than the Actel BU they will swing to producing a over 20% Profit from operations.
If Microsemi also rationalizes the product line to reduce R&D than this will be a fantastic M&A. However, reducing R&D might not be necessary because Microsemi seems to be very talented at extracting development fees from their customers.
Within consumer electronics, NRE are the three dirtiest letters in the entire English vocabulary, yet in military markets it is simply called design support costs, and seems to still be accepted. For some unknown reason Actel has never managed to tap this revenue / expense source. I’d expect that situation to change under Microsemi’s management.