LSI Logic and Agere agree to join forces

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By  Published  December 8, 2006

LSI Logic is to acquire fellow chip maker Agere Systems in an all-stock transaction valued at around US$4 billion.

The merger will substantially increase LSI’s footprint in the processor market. LSI already makes chips for enterprise storage hardware and PCs,
and the addition of Agere will give it presence in the mobile phone and communication networks markets.

The deal is also expected to create substantial cost savings. LSI said that by 2008 the combined company would generate annual savings of at least US$125million through increased efficiencies in manufacturing and operating expenses.

The two companies employ around 9,100 staff across more than 20 countries, but there has been no word yet as to whether any jobs will be lost as a result of the merger.

LSI president and CEO Abhi Talwalkar will stay on as president and CEO of the new company, which will retain LSI’s name.

“By joining forces, we expect the combined scale to enable us to extend our franchises in our market segments, realise significant synergies and better serve the needs of our collective customers, shareholders and employees,” Talwalkar said in a statement.

Richard Clemmer, Agere president and CEO, added that Agere employees and customers would benefit from the synergies and enhanced growth prospects that were anticipated to result from the larger organisation.

One of both companies’ major customers is Seagate. The hard drive giant responded positively to the merger, claiming it was “excited by the innovative possibilities that this new combination represents”.

However, some analysts have questioned whether such a merger will succeed given the limited cost savings that can be achieved. “We regard the deal as ambitious given the limited product overlap and manufacturing synergies,” wrote Joe Osha, an analyst with Merrill Lynch, in a report.

The deal comes just over a month after LSI bought storage area network (SAN) management and data protection software provider StoreAge Networking Technology for US$50million.

This month also saw chip maker Qualcomm acquire a key player in wireless connectivity, Airgo, for an undisclosed amount.

The acquisition is intended to enhance Qualcomm’s ability to deliver semiconductor solutions forwireless devices.

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