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PMC-Sierra to buy QED for $2.3 billion

PMC-Sierra, Inc. (Nasdaq: PMCS) said Wednesday it will buy Quantum Effect Devices Inc. (Nasdaq: QEDI) for about $2.3 billion, and intends to make its open-architecture MIPS technology dominant in the broadband semiconductor space.

Shares in the company closed at 196 7/16 Tuesday. It recently snapped up two companies with digital-signal-processing technology to augment its broadband communication semiconductors.

PMC-Sierra will gain from QED's MIPS processors for networking applications, which Bailey called "one of the most widely adopted architectures in the broadband infrastructure." The open architecture processor competes with the power PC microprocessor, which all of Motorola's (NYSE: MOT) platforms are based on.

"QED could be a billion dollar a year business for us in 5 years," said Bob Bailey, PMC-Sierra's chairman and CEO in a conference call Wednesday morning.

Analysts suggested this was overly aggressive, considering QED's financials -- the company brought in $15.4 million in 1999.

"It’s a goal, just like in ྚ we set a goal for a half billion 2001 - and I think we're going to achieve that," Bailey responded. He added that he expected the acquisition to have a neutral effect on earnings for the year, but declined to discuss financials further in the call, which focused on the rerouting of PMC's business strategy.

While the addition of QED's business is expected to continue to drive processor performance, the main benefit will be new technologies and products, which Bailey said he couldn't yet discuss.

Analysts also questioned whether Cisco (Nasdaq: CSCO), which accounts for over 10 percent of revenue for both companies, would approve of the deal.

Based on today's closing price, the exchange of 0.385 PMCS shares per QEDI share will make the deal worth about $2.3 billion. The transaction will be accounted for as a pooling of interests.

Tom Riordan president and CEO of QED, will report to Bob Bailey as vice president and general manager of the new division.