LSI Could Sell Off Agere’s Networking Business

Implications: Agere’s networking business has little synergy with the rest of the two companies’ merged product lines.

Selling off the networking business would produce cash and a more focused company.



Analysis: In calendar 1H06, Agere’s networking segment generated 35% of the company’s revenue. Yet this business has been largely overlooked in discussions of the LSI/Agere merger. The networking business includes what were formerly Agere’s enterprise and networking division and telecommunications division. In addition to legacy ASIC and analog-modem lines, the networking segment includes standard products for ATM and Sonet/SDH, network processors, and an emerging Gigabit Ethernet business. Under Abhi Talwalkar’s leadership, LSI exited its existing telecom business and has shown no interest in enterprise networking. The products and technologies contributed by Agere’s networking segment have little synergy with Agere’s storage and mobility products, nor do they have much to do with LSI’s standard products.

In addition to generating cash, a sell off of the networking business would produce a merged company focused on the storage and consumer markets. Although the storage strategy should be straightforward, LSI has plenty of work to do on the consumer/mobility fronts. Jettisoning the networking business would allow management to better focus on these strategic areas. Agere’s networking business should also be attractive to a comm-IC focused acquirer. In telecom, experience matters and Agere’s Lucent/Bell history remains a key strength. And because Agere’s products are all built at TSMC, a fabless vendor can continue development of these products without any process migration issues. Although this would be a sizeable deal, it would be on the same scale as Marvell’s acquisition of Intel’s PXA line.