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LSI Logic to buy C-Cube in stock swap

    LSI Logic said Monday it will snap up C-Cube Microsystems in a stock swap valued at around $878 million. LSI said the deal will boost its position in the broadband entertainment market.

    Shares of C-Cube surged $5.43 to $14.25, or 61 percent, in early trading. LSI was off $1.68 to $19, or 8 percent.

    LSI Logic (NYSE: LSI) makes communications and storage semiconductors for data, voice and video. The company had warned March 5 that its first-quarter revenue would miss expectations. LSI also said it was cost cutting and looking for ways to boost its profits and competitive position.

    The acquisition of C-Cube Microsystems (Nasdaq: CUBE) will do just that for the company.

    The deal, which is expected to close in the company's second quarter ending June 30, will add to LSI's earnings before goodwill amortization in 2001, the company said. Back in January, LSI had also cut its second-quarter projections, but said it was expecting a rebound in the second half. First Call's current consensus is projecting earnings of 3 cents a share from the company's first and second quarters.

    According to First Call's estimates, C-Cube is expected to report earnings of a penny a share and 6 cents a share for the first and second quarters, respectively. The Milpitas, Californa-based company reported $265 million in revenues in 2000, and has 600 employees.

    The acquisition of C-Cube will also put LSI in a position to supply technology for the "networked digital home." Up until now, LSI's technology has aimed at storage technologies for the enterprise market--workstation giant Sun Microsystems (Nasdaq: SUNW) is the company's largest customer. With C-Cube it gains chip technology for digital set-top box, DVD and emerging CODEC applications. CODEC, or COder-DECoder technology is hardware or software that converts analog signals to digital code and vice versa. The applications C-Cube covers include personal video recording, home media servers, recordable DVD, residential gateway and streaming video.

    In the transaction, each outstanding share of C-Cube common stock is to be exchanged for 0.79 of a share of LSI Logic common stock. The deal will be accounted for under the purchase method of accounting.