Rockwell to buy Brooktree

Electronic News, July 8, 1996 by Andrew MacLellan

Seal Beach, Calif.--Rockwell International moved to acquire San Diego-based Brooktree Corp. in a $275 million stock transaction, a deal which observers believe could help Rockwell solidify its digital and mixed-signal communications product line and expand its presence in the multimedia arena.

Pending government and shareholder approval, Brooktree, which had FY95 sales of $138 million, will become a wholly-owned subsidiary of Rockwell and will operate as a division of Rockwell Semiconductor Systems.

Dataquest senior analyst Dale Ford called the bid a strategic one which will help Rockwell re-tool its image as a provider of fax/modem and wireless communications components to reflect the market's larger potential.

"The bottom line is it's a complementary thing that really moves Rockwell along in its efforts to enter the realm of personal communications," said Mr. Ford. "Brooktree brings two things: digital communications, and, of course, a graphics capability. And that's really a completely new capability Rockwell acquires here."

Under the agreement, Brooktree's 575 employees will be retained. Operations in San Diego, Colorado and Texas will remain open and could be expanded. Brooktree's sales efforts in Asia and Europe and a product test facility in Singapore also will continue largely unaffected, although the companies' sales forces face future consolidation.

"From a management standpoint, we will merge into one cohesive entity, but the determination as to where our resources are to be deployed has yet to be made," said Brooktree president/CEO James A. Bixby, who reported that the company's shareholders have so far reacted favorably to the acquisition plan. On Wall Street, Brooktree stock surged on word of the sale, climbing 3-3/4 points to close at 14- 1/4. Dwight W. Decker, president of Rockwell Semiconductor Systems, named Brooktree's video processing, PC graphics and wide area network (WAN) communications products as among those which will help his company continue to diversify its portfolio.

"This merger of our business will broaden our existing competencies in mixed-signal computing and brings Rockwell critical new communications and multimedia processing building blocks," said Mr. Decker.

Mr. Bixby said the decision to sell was based on Rockwell's expansive marketing and distribution channels, wafer capacity, advanced process technology and R&D, and complementary intellectual property. Brooktree and Rockwell have worked together often during the past five years, and, in fact, it was technology purchased from Rockwell which became the core of Brooktree's communications business.

"Brooktree is bringing the quickness and nimbleness of a fabless company to the party, and combining that with the real strategic strength that other fabless companies don't have," said Mr. Bixby. "I've always believed the destiny of any fabless company ought to be to associate with a larger company. I think the days where a fabless company can continue to grow without some kind of capital infusion are numbered. And in this business, if you're not growing, you're dead."

Surprisingly, the two companies claim to have no redundant technologies. Rockwell said it will leverage Brooktree's strengths in high-bit-rate digital subscriber loop (HDSL) technology, Fast Ethernet and asynchronous transfer mode (ATM) chipsets, and will expand its multimedia business unit with the addition of new video/graphics encoding and decoding ICs.

"What we see at this point is that we don't have a single product where there is overlap," said Mr. Decker. "It's really amazing. It's not like Brooktree builds washing machines and we build railroad cars. We both have similar core competencies, but we have adjacent products. That's the beauty of it."

Dataquest's Mr. Ford agreed that Rockwell's abilities as a multimedia provider would be enhanced specifically by combining its modem/audio expertise with Brooktree's strengths in graphics and video.

"They defined themselves in a very wise fashion as a personal communications chip supplier as opposed to a modem chip supplier," said Mr. Ford. "That opens the realm of how they are going to push their business in a very broad way. It refines their future game plan and should be a very strong move for them."

Mr. Decker said an agreement could be completed as early as September. Rockwell will take a one-time $120 million charge for the acquisition of Brooktree's in-process R&D.