PMC Still Likes Storage

Two years after deciding to move into storage, PMC-Sierra Inc. (Nasdaq: PMCS) still doesn't have any high-profile acquisitions to point to. But the company is finding its way into some storage customers and appears to have laid the groundwork for a good run at this market.

Like fellow telecom-chip vendors Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC) and Vitesse Semiconductor Corp. (Nasdaq: VTSS), PMC entered 2003 citing storage as a growth vector to compensate for lagging telecom revenues. Vitesse pegged its restructuring on storage, and storage products such as Fibre Channel serializer-deserializers (SerDes) now make up half the company's revenues. AMCC declared its interest with the October acquisition of JNI Corp. -- the kind of acquisition AMCC investors had been waiting for -- and is ready to flesh out its relatively new storage division. (See Chip Trio Faces Post-Bubble Blues, AMCC Looks to Buy JNI, and AMCC Completes JNI Acquisition.)

PMC's efforts have been less dramatic, although the company has been pumping out products (see PMC Goes Loopy and PMC Dips 4-Gig FC Chips). The company also sells general-purpose products, such as microprocessors, into the storage area. So far, though, the company hasn't been swayed by any JNI-sized deals.

"Our efforts to date have been internal," CFO Alan Krock told Light Reading, Byte and Switch's sister site, noting that at "a couple million dollars" in quarterly revenues, storage remains a small slice of PMC's world. For its December quarter, PMC reported revenues of $70.6 million and net income of $9.5 million, or 5 cents per diluted share, compared with revenues of $52.6 million and losses of $30.5 million for the same quarter a year ago (see PMC-Sierra Boosts Q4 Revenues).

"We would like to participate [in storage] in a meaningful way. We haven't found the ideal partner to get us into that," Krock says.

Since the downturn, PMC has been stingy about acquisitions in general. Krock says the company is shopping but hasn't seen slam-dunk prospects in storage or any other area. Most of PMC's best bets seem to be with internally developed technology, he says.A lot of that work involves customers' future storage applications, "so time will tell whether we've been successful in there," Krock says.

In particular, PMC is securing its spot in the nascent 4-Gbit/s Fibre Channel market, says Jeremy Bunting, analyst with Thomas Weisel Partners. That PMC didn't lead the 1- and 2-Gbit/s generations isn't a handicap.

"The competition in Fibre Channel chips changes with every speed grade, with Vitesse being the only consistent player," Bunting says. Plenty of chip makers are eyeing the 4-Gbit/s market, including Agilent Technologies Inc. (NYSE: A) and Silicon Image Inc., but it's looking as if PMC will have a good standing at the 4-Gbit/s level, he says.

"So, based on how quickly 4-Gbit/s is adopted, and it may not be until '05, I think, PMC will have footing in that market," Bunting says. "Storage, although it's a relatively small market versus telecom, will continue to be a good market for [PMC]."

Craig Matsumoto, Senior Editor, Light Reading