Intersil to acquire Elantec in US$1.4B deal

Intersil Corp. is to acquire Elantec Semiconductor Inc. in a cash and stock deal valued at US$1.4 billion, the companies announced Sunday.

Irvine, California-based Intersil is looking to merge Elantec's microchip business, in the video and optical storage market, with its own production of chips for high-speed networks including WANs (Wireless Local Area Network) , the companies said in a statement.

With complementary product lines, the combination of Intersil and the Milpitas, California-based Elantec would bring cost savings though consolidation as well as improved analog and wireless products to its customers, the companies said. The deal, which was approved by the boards of directors of both companies, is expected to close by the end of the second quarter, pending standard regulatory approvals and shareholder votes, Intersil and Elantec said.

As part of the agreement, Rich Beyer, the current Elantec president and chief executive officer (CEO), will become the new president and CEO of Intersil, said Greg Williams, Intersil's current president and CEO in a telephone news conference on Monday. He didn't say what his role, if any, would be with the company.

Intersil, one of the largest players in the high-speed network market based on the 802.11b standard -- also known as Wi-Fi -- has recently acquired two other wireless companies, the companies said.

The combined company would have a balance sheet with more than $550 million in cash and no debt, said Dan Heneghan, Intersil's chief financial officer, on the conference call.

Intersil and Elantec's customers include Cisco Systems Inc., IBM Corp., Alcatel SA, Sony Corp., Samsung Electronics Co. Ltd. and Koninklijke Philips Electronics NV, Beyer added.

"We can now expand into other, higher growth markets with this acquisition," Williams said.

According to Beyer, Elantec currently holds about 70 percent of the CD-RW (CD-rewritable) market with its largest competitors being Sony, Toshiba Corp. and Asahi Kasei Microsystems Co. Ltd. (AKM). "That market is still at an early stage of development. We first see significant growth in the PC space, then DVD (digital versatile disc) recordable drives replacing those. Then coming into the market is BlueLaser technology which will begin to come online in late 2003 or early 2004," Beyer said.

Blue lasers have a shorter wavelength than the red lasers used in conventional DVD players and have storage capacities of up to 27G bytes, since the technology is able to write data in smaller tracks on the disc itself.

The acquisition of Elantec will also make Intersil a stronger competitor on the growing LCD (liquid crystal displays) market, Williams said.

Only about 10 percent of PCs currently have LCDs, and there is the potential for explosive growth in the PC market, Beyer said. "LCDs will go way beyond the PC market, and we will also see LCDs in TVs; from there, we'll see LCDs on the retail market," Beyer said.

The merger between Intersil and Elantec will also benefit both companies when it comes to global reach, Beyer said. "Elantec has a significant presence in Korea and Japan while Intersil has a large presence in Taiwan. This (merger) is going to afford us to bring our products into (the Asian markets) much more quickly," Beyer said.

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