Agere, Broadcom Mum on Buyout Rumors

By Ed Sutherland

October 07, 2004

Will a leading WLAN chip vendor buy out a former leader? No one is saying yes, but recent patent settlements have given the rumors some credibility.

Wi-Fi chipmakers Broadcom Corporation and Agere Systems are refusing to comment on rumors circulating that the two WLAN companies are looking to combine forces. "It's our long-standing policy not to comment" on speculation, said spokespeople for both companies.

Adding to talk of a future merger was Broadcom's decision Tuesday to settle patent disputes with Agere. Both companies agreed to cross-license each other's patent portfolios, as well as dropping any asserted and unasserted patent-related claims.

While terms of the settlement with Agere were not disclosed, Broadcom did say in a statement that it expects the litigation and patent claim settlement will cost the company $27.5 million.

Talk of a possible Broadcom purchase caused stock of the Allentown, PA-based Agere to nudge higher to $1.26. At one time, Agere stock was trading near $75.

While the rumor has helped Agere's lagging stock somewhat, industry watchers believe Agere's product would only duplicate areas where Broadcom seems the strongest: cell phone circuits and WLAN components.

In September, Agere announced it was cutting its workforce and manufacturing. Facing a drop in 2.5G/GPRS sales, the company said it would eliminate 500 administrative, sales, marketing and product development jobs. Agere also announced it is putting its Orlando, Fla. wafer manufacturing site on the auction block. If the plant is not sold by December 2005, the company said it would close the facility and eliminate a further 600 employees. The Orlando manufacturing plant has been up for sale since 2002.

The cuts amounted to seven percent of Agere's total workforce.

"The issues we faced with three major customers now seem to have broadened into an industry-wide inventory correction," said John Dickenson, Agere's CEO.

The company also plans to close offices in New Jersey, Maine and the Netherlands.

Agere was originally spun off from Lucent Technologies, and had major success with early 802.11/802.11b chips. Broadcom was one of the first chipmakers to target the early 802.11g market last year.

"I can tell you that Broadcom is doing well with WLAN, and rumor has it that Agere's recent layoff took with it some in the WLAN chip area," says In-Stat/MDR analyst Allen Nogee.

In-Stat/MDR Wednesday released a report on the health of the WLAN chipmaking market. In the report, entitled "WLAN ICs: Wi-Fi Silicon For PCs, Consumer Electronics And IP Telephony," the research firm lists Agere and Broadcom among the few remaining Wi-Fi chip vendors which dominate the market.

"This market has consolidated, with many former vendors now either out of business or acquired by larger companies, in the face of stiff price competition," wrote Sam Lucero, an industry analyst at In-Stat/MDR.

Half of the $2.1 billion the Wi-Fi chipmakers will earn in 2008 will come from supplying wireless chips for consumer electronics and Internet telephony applications, according to the report.

A skittish outlook on the viability of Wi-Fi companies has marked this week. Legra Systems, a Wi-Fi switch maker, has closed its doors. AirFlow Networks may be on financial life support, and Palo Alto, Calif.-based Bermai earlier this month shuttered its 802.11a chipmaking business. News of the closure came as the company prepared to announce the release of an 802.11a chipset designed for DVD players, television set top boxes, and media center PCs.

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