Vitesse Buys GigE Ammo

Vitesse Semiconductor Corp. (Nasdaq: VTSS), looking to take advantage of customers switching to Gigabit Ethernet as a network and storage transport option in late 2004, today announced plans to purchase startup Cicada Semiconductor Inc. for approximately $66 million in cash.

The deal, subject to approval from Cicada's directors, is expected to close in the first quarter of 2004. Vitesse has been selling Cicada's Gigabit Ethernet copper transceivers with its LAN switches for more than a year.

The move shows Vitesse's determination to benefit as its equipment-maker customers follow the trend from older Ethernet systems to faster ones that support Gigabit Ethernet. Cicada also is at work on 10-Gbit/s physical interface (PHY) chips, which are expected to be vital to data communications and storage networking in the future.

Vitesse CEO Lou Tomasetta said in a prepared statement that he expects the acquisition to double his company's LAN switch revenues.Most questions hover around Cicada, which fancies itself an "arms dealer" of copper Gigabit Ethernet PHYs.

Cicada raised at least $40 million in funding since it started in 1996. The startup battled giants Broadcom Corp. (Nasdaq: BRCM) and Marvell Technology Group Ltd. (Nasdaq: MRVL) in the GigE PHY market. Because Cicada has been selling its copper PHY transceivers to other companies, including VIA Technologies Inc. and SwitchCore AB (Stockholm: SCOR), the Vitesse deal could also cause some realignment of partnerships (see Cicada Clicks With GigE Controllers and Cicada, SwitchCore Partner).Cicada spokesman Roger Taylor says he expects his company to try to maintain its previous partnerships. "We've considered ourselves like independent arms dealers with PHYs until now," he says. "I guess we'll try to retain as much of our position as we can."

Vitesse's Tomasetta said he expects Cicada products to contribute around $10 million in 2004 revenues, mostly in the second half of the year, when many customers are expected to upgrade to Gigabit Ethernet. He also expects Vitesse to record charges related to the deal. Details will have to wait until after the holidays.

Cicada's Roger Taylor says the company currently has between 50 and 60 employees; Vitesse's release said it expects Cicada will have approximately 40 employees when the deal closes. Taylor says no Cicada employees have been told whether they will be retained, including management.

The remaining employees will mostly be those working in product development. Vitesse's press release quoted Cicada CEO David McLean as saying, "We are thrilled to be joining forces with Vitesse. We have had a successful business relationship with them and look forward to combining our engineering teams to capture a substantial share of the emerging Gigabit Ethernet LAN market."

Richard Riker, Vitesse's VP of sales and marketing, says the Cicada employees will stay on at its Austin, Texas, headquarters as part of the Vitesse Ethernet business unit."We've had a very close relationship with Cicada, both on the technology and sales and marketing sides," Riker says.

It has been an active year for GigE PHY players. This deal comes four months after Agere Systems Inc. (NYSE: AGR.A) purchased Dublin-based GigE PHY vendor Massana for about $26.2 million in common stock (see Agere Goes Gaga Over Gig-E). This wasn't Cicada's first transition of 2003, either: Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC) acquired Cicada's T2 line interface unit (LIU) in the first half of the year for an undisclosed price (see AMCC Snacks on Cicada Scraps).

Dave Raffo, Senior Editor, Byte and Switch