Just months after finally exiting the commodity chip business with the sale of its Fairchild Semiconductor Inc business in March (CI No 3,122), National Semiconductor Corp has stepped right back into the frame with the acquisition of Cyrix Corp in a share-swap valuing the Richardson, Texas-based Intel Corp iAPX- 86-compatible chip builder at $550m. NatSemi says Cyrix’s MediaGX processor technologies are the final piece of its plan to create system-on-a-chip engines for powering sub-$500 desktop PCs, set- tops, digital video disk players, digital TV appliances, and other devices. Including technology from its $100m acquisition of Mediamatics Inc back in March, Nat Semi says it now has all the intellectual property it needs for these devices, including CPU, graphics, audio, management, Ethernet, modem, video, I/O, MPEG, Dolby and others. It says that in a couple of weeks its personal systems group will announce details of technologies that third party vendors will be able to use to create system designs to address these markets it expects to begin coming to market in May next year. Nat Semi hopes it can eventually create integrated components to power sub-$200 devices over time. Under the terms of the deal, announced after the major markets closed last night, Cyrix shareholders will get 0.825 Nat Semi shares for each Cyrix share based upon last Friday’s closing share prices of $21.25 and $33.50 respectively. At close on Monday, Cyrix was up to $23.06 – and rose in after-hours trading until its shares were suspended – while NatSemi dinked down to $33.00. Cyrix, a 390-person company, which lost $24.8m on revenue of $183.8m last year, will be operated as a standalone unit at least until the acquisition is completed at the end of Nat Semi’s second quarter in November, when it expects take a one-time charge. Nat Semi expects Cyrix to be breaking even by then. Nat Semi is issuing 16 million shares, or a further 10% of stock, to mitigate the effects of dilution. Cyrix’s mid-term results just gone showed a profit of $1.3m on revenue of $115.6m.
Scrambling to get ahead
Under its existing agreement with Intel, NatSemi expects to be able to begin manufacturing Cyrix’s designs in addition to the company’s other fab partners, which include IBM Corp. There will be no change in [the] IBM [relationship] in the short term, the company says. Cyrix’s other high-profile licensee, SGS-Thomson Microelectronics NV, seems have to have fallen from grace after it took up with Metaflow Technologies Inc to create an Intel- compatible device of its own, even though it insists its Metaflow deal is complimentary to that with Cyrix. NatSemi has just opened an 0.35 micron facility in South Portland, Maine – with five-layer metal process technology coming – has 0.25 devices in prototype at its Santa Clara, California facility, and claims to be scrambling to get ahead of other companies which are starting to tool-up for 0.18 micron production. Compaq Computer Corp is Cyrix’s chief customer for its MediaGX processors which the PC giant uses in its Presario home computers. In addition to the 5×86 MediaGX core – which includes Cyrix’s own multimedia extensions and runs all Intel Pentium software at 180Mhz, with higher clock versions due in a couple of quarters – Cyrix also develops CPUs for higher-end desktops such as the recently- introduced 6x86MX competitor to Pentium II. It says it will carry on developing high-end parts as these are the technologies which eventually feed into the volume products NatSemi has placed at the core of its system-on-a-chip strategy. Cyrix says it expects to expand both its Richardson and Longmont, Colorado facilities. Despite its on-going litigation with Intel – which Cyrix is suing for infringement of patents in the areas of power management and register renaming – Cyrix says there’s still room for a working relationship going forward now it’s under new management. The acquisition is crucial to Nat Semi’s ambition to climb back into the top-tier of semiconductor suppliers as a major force, as for the last few years it appears to have been treading water. It says its aim is to develop a business model with gross margins of 45%.