Who profits from semiconductor spin-offs?
Semiconductor spin-offs are all the rage. Do you think they're good deals for everyone involved? Think again. Here's a look at 10 notable chip divestitures.
Steve Tobak is a consultant and former high-tech senior executive. He's managing partner of Invisor Consulting, a management consulting and business strategy firm. Contact Steve or follow him on Facebook, Twitter or LinkedIn.
We've seen a horde of semiconductor spin-offs these past 10 years. Why all of a sudden? Companies are refocusing on core competencies and unloading unprofitable, sometimes debt-ridden businesses. There's also an ongoing and apparently interminable disaggregation of the electronics industry.
The latest trend is for semiconductor companies to spin off product or application-focused companies. I'm not sure that's always the right move, but you'll see a lot more of that in the coming years.
Here are 10 notable chip divestitures. A bunch of them went public during the tech bubble--exciting for them, not so much for long-term investors who, for the most part, took it in the shorts. Quite a few were also named in two other blog posts I wrote: Bad branding infects tech and Ten irrelevant technology companies. That's not a coincidence.
Fairchild Semiconductor (National Semiconductor) - National revived the Fairchild name to unload its unwanted jellybean chips along with Kirk Pond, who became CEO, in 1997. Ironically, Fairchild was valued higher than National at one time. Current market cap of $1.5 billion is about two-thirds of its IPO price.
Conexant Systems (Rockwell) - I recently named Conexant one of 10 irrelevant technology companies. Amazingly, its stock once traded above $100; it's now worth about 50 cents. Rockwell did one hell-of-a job unloading its garbage on overzealous tech-bubble investors.
MIPS (Silicon Graphics) - MIPS is another of those irrelevant technology companies. Revenues peaked back in 2000, profits are rare, and its stock is trading at about 25 percent of its 1998 IPO price. Chief executive John Bourgoin's a great guy, but how much time does that buy a poor-performing CEO?
On Semiconductor (Motorola) - On is currently trading at about 25 percent of its bubble IPO price, but the company has undergone extensive restructuring and is now profitable and growing. The boss is Keith Jackson, a guy I worked with a million years ago at Texas Instruments. Recently the company agreed to acquire AMIS, which trades at about a third of its 2003 IPO price. I'm not sure why or if anyone should care.
Infineon (Siemens) - Infineon currently trades at about one-eighth of its fat bubble IPO price. The red ink that's been piling up in recent years may have something to do with that. The company's also been mired in price-fixing scandals and executive turnover, which doesn't help either. Infineon later spun off Qimonda, but that's another story.
Intersil (Harris) - One of the few success stories, this analog chip company has thrived since its spin-off. The original Intersil was part of GE's RCA operation, which Harris acquired in 1988. The tech bubble IPO was worth about twice today's market cap of $3 billion. The board of directors wisely tapped Rich Beyer as CEO after the Elantec acquisition.
Agere Systems (Lucent) - Agere's 2001 public offering was worth $3.6 billion, but the company wasn't fully emancipated from Lucent until 15 months later. LSI Logic bought Agere for its storage chips for about $4 billion last year. That's essentially a wash for shareholders.
Freescale (Motorola) - Spun off from Motorola just three years ago, Freescale was swept up by Blackstone and other private equity firms last year in a deal worth $17.6 billion. I think shareholders made out well in this one, but I'm not sure it was worth the price.
Spansion (AMD) - Spun off from Advanced Micro Devices just two years and a few months ago, this Flash memory maker has yet to make a profit. Investors have weighed in by trashing the stock--it's down 75 percent from its December 2006 IPO.
NXP (Philips) - Philips sold 80 percent of its semiconductor unit to a group of private equity companies in the fourth quarter of 2006. It's still too early to tell how this spin-off will fair.
So, that's the 10. You may have noticed I omitted Japanese combo-spin-offs like Elpida (NEC and Hitachi memory) and Renesas (Hitachi and Mitsubishi microcontrollers). They're not transparent enough to know what's really going on. Fujitsu is also planning to spin-off its semiconductor unit. I'm sure there'll be more to follow.
My assessment is that, in general, these deals are in the best interest of the mother company and nobody else. Investors who buy into chip spin-off IPOs almost always get hosed. Private equity deals, on the other hand, are structured so that investors always make out. Lastly, I'd say customers don't care either way, unless they compete with the mother company, in which case they like the emancipation.
Who do you think prospers from these transactions? How about employees, shareholders, and customers of the spin-offs? How about the mother companies?