PMC-Sierra Inc. to buy Quantum Effect Devices Inc. for 149.35 times revenue

Weekly Corporate Growth Report, Jul 24, 2000

The Deal: The chip maker PMS-Sierra Inc. has announced that it will purchase Quantum Effect Devices inc., a maker of microprocessors used in consumer electronics, in a stock swap worth $2.3 billion. Shares of PMC were up $11.625, to $208.0625, and Quantum shares rose 30 percent, rising $18.4375 each, to $78.9375. The deal will give PMC a strong presence in the design of high-speed networks and adds a missing component to its product line.

Discussion: Quantum Effect Devices' embedded micro-- processors perform specific data-crunching functions in high-performance electronics such as computers, peripherals, consumer electronics, routers and other communications and networking infrastructure equipment. Customers WebTV Networks, Cisco Systems, and EchoStar Communications make up nearly 50 percent of sales. Royalties from fellow chip maker Integrated Device Technology account for 20 percent of sales. QED outsources its manufacturing to firms in Asia and the U.S.

PMC-Sierra's broadband communications chips can be found in a wide range of networking devices. Top customers Cisco and Lucent use PMC-Sierra's semiconductors to improve transmission speed and performance on the Internet and other high-bandwidth networks. Its switches, mappers, multiplexers and other chips handle various protocols, such as asynchronous transfer mode, Ethernet, and remote-access networking. PMC-Sierra farms out its manufacturing. Nearly 70 percent of its sales are in the US. PMC-Sierra is seeking growth through acquisitions.