TI mass storage IC bid

Electronic News, June 10, 1996 by Crista Hardie

Dallas--In a move that could make Texas Instruments the dominant supplier of semiconductors to the mass storage market, TI revealed plans to acquire Tustin, Calif.-based Silicon Systems, Inc. (SSI). The deal had been expected (EN, May 27).

Under a stock purchase agreement, TI will pay SSI's parent, TDK USA Corp., $575 million in cash and a long-term note, with a potential contingent payment of up to $50 million, based on future performance of SSI. The deal is expected to close within two months, following regulatory approvals. SSI will become a wholly-owned subsidiary of TI but will retain its name and its headquarters in Tustin.

TI had been looking for a way to strengthen its IC position in hard disk drives, and considered increasing investments as well as forming manufacturing alliances, said Delbert Whitaker, senior VP of TI's Semiconductor Group and worldwide manager of its mixed-signal and logic business. According to International Data Corp. (IDC), shipments of hard disk drives in 1995 were 89 million units, an increase of 30 percent over 1994. By the year 2000, 231 million units are expected to be sold yearly.

Some leading hard disk drive OEMs characterized the TI-SSI match as having only positive implications for the mass storage market. Chuck Haggerty, chairman, president and CEO of Western Digital, called it "a marriage made in heaven."

"TI is a world-class manufacturer. SSI is a world-class technology leader. To marry the two clearly makes this a very strong effort going forward," he said.

In 1995, TI was a major supplier to the mass storage market, mostly with digital signal processors (DSPs) and ASICs. But in terms of mixed-signal mass storage ICs, the company was not very strong, Mr. Whitaker said. The melding of TI's DSP and ASIC prowess with SSI's solid design of pre-amps, channel devices and servo ICs falls neatly into TI's DSP marketing strategy.

"Wireless communications, modems and mass storage all have DSP as an engine. But to have a solution requires the mixed-signal products that go around them," Mr. Whitaker said. "The combination of those things will allow us to work with customers to partition a circuit to give them a product-performance advantage."

Meanwhile, what was called a minor overlap in programs is not expected to result in a workforce reduction. "If there is any redundancy, we hope that will free up resources to pursue other areas of mass storage, like digital video disks (DVD), CD-ROM, tape drives and magneto-optical drives," said Rick Goerner, current executive VP and COO of SSI and president-to-be of SSI under TI. Mr. Goerner will report directly to Mr. Whitaker.

As part of the deal, TI acquires SSI's 150-millimeter (six-inch) wafer fab in Santa Cruz, Calif.--currently undergoing capacity expansion and a process upgrade--as well as its design facilities in Grass Valley, Calif., and Colorado Springs, Colo.; an assembly/test operation and design center in Singapore; and a design center and Japan Operations in Tokyo.

All of the resources TI has put into mass storage are expected to eventually be integrated into the new SSI structure. SSI will be responsible for all the mixed-signal mass storage product development, with support from TI's DSP unit, the companies said.

Under TI's auspices, SSI's mass storage IC business prospects will be bolstered, TDK said. The company declined to be interviewed, but said in a written statement: "Long-term prospects for SSI's highly specialized products will be enhanced by a relationship with a major semiconductor company."

Sources earlier suggested TDK was wrestling with an "emotional decision" to let go of its only semiconductor subsidiary in the face of limited access to manufacturing and the high cost of building a fab. Outdated process technology led the company to sell its unproductive 100mm (four-inch) wafer plant in Tustin (EN, Jan. 30, 1995) and sink $100 million into an expansion currently under way to double capacity in Santa Cruz--but even that would not offset demand.

TDK ultimately will stay in the semiconductor business, retaining SSI's Communications Products Division, which primarily makes transceivers for telecommunications. The division is expected to be re-incorporated as TDK Semiconductor Corp., remaining--for at least a year--in the current SSI facility. SSI will provide administrative support during the transition, a company spokesman said. The group is also said to be guaranteed access to the Santa Cruz wafer fab for current product lines; however, the terms of access were not disclosed.

"One of the biggest issues facing SSI and TDK for the last two years was allocation--demand has far exceeded supply," Mr. Goerner said. "TDK saw the advantage of a relationship with TI, its breadth of technology and capacity, and it became obvious it might be an attractive way to realize a financial return and still fulfill its commitments to customers."

The mass storage industry requires high volumes of increasingly lower-cost, higher-performance and more highly integrated devices. That means a supplier must have the ability to increase or back off production of any given device, and constantly advance its processes.