Exar Corp. took another step to advance its analog diversification strategy with a $223 million proposed deal to acquire Integrated Memory Logic Ltd. (iML), a fabless semiconductor company that provides power-management chips aimed at the flat-panel display market.
iML has been very profitable, generating gross profit margins of 52.7%, which are higher than typical discrete suppliers, as well as operating margins of 22% last year. Svanberg attributed the robust gross margin base to iML’s highly integrated power management chips, adding that iML believes that it can chalk up 20% growth “over time” by increasing its market share. iML, which recorded revenue of nearly $67 million in 2013, is banking on two key drivers for the TV market: 4k Ultra HD displays and Open Cell, a trend in which TV OEMs in Korea and Japan are outsourcing LCD panel assembly to Chinese companies, according to Svanberg’s written report.
Although analysts said that Exar would benefit from the deal, which is expected to close in the second quarter of fiscal 2015, it’s still a bit risky. Exar is entering the highly competitive consumer electronics market, going up against major chip makers such as Texas Instruments and Intersil. Still, iML has a lot to offer.
iML has a differentiated product offering, and has significant traction with tier-1/2 OEMs in the TV/tablet/NB space for the Chinese, Korean, Taiwanese, and Japanese markets, where it competes on power efficiency, BOM/system cost and form factor,
iML also has green products in the pipeline, including power management chips for TVs and smartphones, as well as light sensors for portables, which should help boost Exar’s top line in 2014.
Exar has been aggressively pursuing acquisitions for more than a year to help expand its product line. In January, Exar acquired Stretch Inc., a provider of software configurable processors supporting the video surveillance market, for an undisclosed sum. And in July 2013, it entered the precision analog market with the $29 million acquisition of Cadeka Microcircuits. In February 2013, it acquired the assets of Altior Inc., a provider of hardware and software compression solutions for use in big data applications, for $5 million.
At the time, DiNardo said that the changes are part of Exar’s “ongoing strategy to cultivate best-in-class product solutions and management leadership, whether internally developed or through acquisitions.”
In its third fiscal quarter of 2014 ended December, Exar recorded revenue of $30.7 million from $34.0 million in the second fiscal quarter and $31.0 million in its third fiscal quarter of 2013.