AMCC Powers Up

The acquisition of some IBM PowerPC technology could boost AMCC's profile in network processors

April 15, 2004

3 Min Read
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Could it be Intel envy?

Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC) is acquiring assets related to IBM Corp. (NYSE: IBM) microprocessors, a move that could let AMCC's network processors match the integrated offerings of Intel Corp. (Nasdaq: INTC).

AMCC is acquiring intellectual property and assets related to IBM's PowerPC 400 line of microprocessors for $227 million in cash, the companies announced today. The deal includes an option for AMCC to buy $5 million more in IBM assets (see AMCC Pays $227M for IBM IP).

AMCC expects to pick up 70 IBM employees as part of the deal, which is expected to close before June 30.

This marks AMCC's second deal with IBM's chip organization. The first was the acquisition of IBM's switch fabric operations, including a design team based in France (see AMCC Switches On IBM's Fabric).It's worth noting that the parts acquired aren't actually chips: They're "cores," processor designs intended to fit inside ASICs. AMCC is not gaining control of the standalone PowerPC chips used in the Apple Computer Inc. (Nasdaq: AAPL) Macintosh, for example. IBM retains the rights to the PowerPC 400 intellectual property, meaning the company will continue using the parts inside ASICs.

The related cores -- the PowerPC 403, 405, and 440 -- garnered $55 million in revenues in 2003, IBM estimates. In its first full quarter under AMCC, which would end in September, the PowerPC designs could bring in $20 million in revenues, said AMCC chief financial officer Steve Smith on a conference call this morning.

AMCC can use the PowerPC alongside its storage chips, but the most promising application will be to integrate the PowerPC with a network processor, creating an all-in-one chip. "What we're talking about is perhaps getting into some integrated products in the future," said Tom Tullie, general manager of AMCC's WAN business, on the conference call. AMCC isn't yet giving a timeframe for the integrated products.

The integration would create a double-teaming effect: The network processor would continue to work the data plane, reading and modifying packet headers, while the PowerPC could handle the control-plane duties such as running an operating system. Intel already does this, packing an XScale microprocessor into its newer network processors. The acquisition "allows AMCC to align more with what Intel is doing," says Linley Gwennap, principal of research firm The Linley Group.

The lack of an integrated control-plane processor hasn't hurt AMCC in the market, but it's certainly a welcome addition to the company's arsenal. "It's going to be a bigger issue in the future, because people are always looking at integration and lower cost," Gwennap says. That trend is intensifying as network processors lean more toward access and edge markets, cost-sensitive areas where chip integration is a selling point (see Net Processors Aim for Access and Chip Startups Process Profitability).To help pull off this integration, AMCC is getting access to IBM's chip foundry and design methodology as part of the acquisition. That's no small potatoes, as IBM is counted among the most advanced chip-building operations in the world.

AMCC isn't alone in acquiring a general-purpose microprocessor; Broadcom Corp. (Nasdaq: BRCM) and PMC-Sierra Inc. (Nasdaq: PMCS) picked up SiByte Inc. and Quantum Effect Devices Inc. (QED), respectively, in 2000. Both of those chips use the MIPS architecture, a competitor to PowerPC, and they've dominated the market for high-end, standalone control-plane processors. (See Broadcom's on a Buying Spree, PMC Intros MIPS Processors, and Control Plane Envy.)

Craig Matsumoto, Senior Editor, Light Reading

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