Merger Deal Between Chip Makers Worth US$2.3B

BOSTON (07/12/2000) - Processor chip maker PMC-Sierra Inc. is buying Quantum Effect Devices Inc. in a stock deal valued at about US$2.3 billion, the companies announced Wednesday.

PMC-Sierra shares will be issued to QED stockholders at an exchange ratio of 0.385 PMC shares per QED share. The deal is subject to QED stockholder approval and customary closing conditions.

PMC-Sierra makes broadband communications semiconductor chips, while QED produces embedded microprocessors used in consumer electronics. PMC-Sierra wants to produce high-speed network microprocessors, and the acquisition will help to achieve that, said Bob Bailey, PMC-Sierra's chairman and chief executive officer, at a news conference.

Ever-speedier processors are becoming a key part of broadband systems, he said, also noting that the deal will help in both QED's and PMC-Sierra's relationship with a critical customer.

"Right now, QED's largest customer is Cisco Systems (Inc.), which happens to be PMC's largest customer, so I think we become even more strategic as a supplier to Cisco Systems," he said.

"For anyone who wants to do a highly integrated product, this is a good thing," said Tony Massimini, an analyst and technology chief for Semico Research Corp. in Phoenix, regarding the deal. "Certainly, they are following the trend of integrating the processor cores with the programmable logic. What is a surprise to me is that PMC-Sierra and QED merged, rather than enter into a licensing agreement."

However, International Data Corp. (IDC) analyst Kimberly Funasaki sees benefits to a merger.

"Customers like to be able to buy integrated solutions from the same source," she said, adding that the merger means the two companies can potentially produce cheaper chips that can get to market faster. IDC is owned by International Data Group, which is the parent company of IDG News Service.

The acquisition is at least the fourth for PMC-Sierra since the beginning of this year. Last month, the company acquired fabless semiconductor vendor Malleable Technologies Inc. in a stock swap. Extreme Packet Devices Inc., also a fabless semiconductor company, was bought by PMC-Sierra in April, while Toucan Technology Ltd., a small, integrated circuit design vendor in Ireland, was acquired in January.

PMC-Sierra, in Burnaby, British Columbia, can be contacted at +1-604-415-6000 or at http://www.pmc-sierra.com. Quantum Effect Devices, in Santa Clara, California, can be contacted at +1-408-565-0300 or at http://www.qedinc.com./

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