MMC, AMCC in $4.5 b. merger

San Diego-based Applied Micro Circuits Corporation (AMCC) announced that it

has agreed to acquire Sunnyvale-based MMC Networks for about $4.5 billion in

stock, marking the second-largest merger in the semiconductor industry behind

the $6.7 billion acquisition of Burr-Brown by Texas Instruments.

The union of AMCC and MMC Networks will intensify the high-stakes competition

between makers of ICs for the booming optical networking market. AMCC is a

leading supplier of chips used to make fiber optic communications equipment. MMC

Networks makes network processors and other communications management

technology. Both are suppliers to leading networking firms like Lucent, Cisco

and Nortel Networks.

The deal also combines MMC’s 250 employees with AMCC’s 600 workers.

"We'll be adding on people faster than you can imagine,'' said AMCC CEO

Dave Rickey, who added that the combined company will be able to provide a more

complete chip package. "We're one of the guys behind the scenes that make

the Internet go faster and allow you to send more data than you otherwise would

over the Internet,'' Rickey said of AMCC, which was founded in 1979 and started

out in high-speed military radar.

MMC Networks will become an AMCC subsidiary. MMC has been hurt recently by

IBM’s decision to shut down its network equipment business, which was a major

customer of MMC circuits. As a result, the company lost $427,000 versus a $5

million profit in the year ago quarter. Sales rose 35 per cent to $17 million.

The purchase follows similar merger between Quantum Effect Devices, bought

last week by PMC-Sierra for $2.35 billion; SiTera, acquired in May by Vitesse

for $750 million; and Agere, which Lucent Technologies bought in April for about

$504.5 million. Together, the merged companies believe they will be able to

better take advantage of the booming demand for ICs that help boost Internet

traffic throughput, which is still doubling every few months. Applied Micro's

fiscal first quarter ended June 30. It recorded an operating profit of $27.9

million on sales of $74.2 million.