Sierra leaving modem business; president quits

Electronic News, Sept 2, 1996 by Andrew MacLellan

San Jose, Calif.--Sierra Semiconductor president/COO Richard J. Koeltl left the company following Sierra's decision to sell its modem chipset business in the face of declining margins and an inventory backlog.

In what it called a sharpening of focus, the company will devote its remaining resources to the manufacture of semiconductors for the networking and high-speed communications markets. Sierra co-founder and chairman/CEO James V. Dillar will assume the responsibilities of president.

As a result of its move, Sierra will take an anticipated $50-80 million charge to earnings which would be offset by the sale of its modem business. The company said about 150 of its 500 employees will be affected and expects layoffs to commence unless a buyer steps forward. No bidders have yet been identified.

Sierra would not say whether Mr. Dillar, who had served as company president prior to Mr. Koeltl, would resume the post permanently. Mr. Koeltl came to Sierra from AT&T in 1993 specifically to buttress the company's modem business, and his departure is said to have been caused directly by the restructuring.

According to a company spokesperson, Sierra entered the PC modem business in 1985 with a 300-baud modem and has since grown into a value-added provider, marrying the basic modem set-up to fax and speakerphone chipsets. Sierra's most recent products include a modem device with videoconferencing capability and a soon-to-be-released model with digital simultaneous voice and data. In all, modem sales account for about 30 percent of the company's revenues.

However, Sierra has suffered through a faster-than-expected shift from the V.32 modem specification to the V.34 standard, which has left many vendors with an excess of parts. In addition, a slowdown in the growth of PC sales and aggressive development by modem manufacturers Rockwell Semiconductor, AT&T and Cirrus Logic have helped mature the market and resulted in razor-thin margins.

It's the latter phenomenon which Sierra says has caused it to place its chipset business on the selling block, convinced that the face of the PC modem market has been forever altered.

"We feel modems have become a commodity product, and a feature-rich product," said the Sierra spokesperson. "Although people want all the features, they're not willing to pay for them. It looks like a permanent change in the market, which is not where we want to be given our particular corporate strategy."

Sierra will now leverage the strengths of its networking and infrastructure chip subsidiary, British Columbia-based PMC-Sierra, to design and manufacture ATM and T1/E1 chipsets for high-speed communications links.