Silicon Systems Says It’s Talking Merger; Won’t Identify Firm
Silicon Systems Inc., a Tustin microchip maker, disclosed Friday that it is holding merger talks with an unnamed “larger public company.”
In a brief statement, the Tustin firm said “no agreements have been reached on price or other terms, and the company’s board of directors has not authorized or approved this or any other transaction.”
Silicon Systems officials declined to identify the company.
The Tustin firm is a fast-growing manufacturer of specialized integrated circuits used in the computer, telecommunications and automobile industries. The company’s sales have grown at an average rate of 28% during the past 5 years.
The disclosure of merger talks sent Silicon Systems stock soaring 29% to $15.50 a share Friday, up $3.50. It was the second-biggest percentage gainer on the New York Stock Exchange.
One Wall Street analyst said the talks appeared to be friendly, but added that the disclosure could spark interest among other potential bidders.
Christopher D. Kirby, a New York technology analyst, said Silicon Systems would make an attractive acquisition target because of its advanced chip-making technology and relatively low stock price, which makes the company look like a bargain to investors.
“They are probably a better company than their financial performance would suggest,” Kirby said. “This could be management’s way of seeking to maximize the value of the company at a point where earnings are not that strong.”
Kirby speculated that a current customer or competitor of Silicon Systems might be interested in owning the company. Two of the company’s largest customers are Seagate Technology, a Scotts Valley disk-drive manufacturer, and Hayes Microcomputer Products Inc., a Norcross, Ga., maker of computer modems, he said.
Irvine-based Western Digital Corp., a maker of microchips and other personal computer components, is an “aggressive competitor” of Silicon Systems, Kirby said. Western Digital might want to buy Silicon Systems “as a way to increase market share and buy technology they don’t already have,” Kirby said.
But he said Western Digital might not be interested in making an acquisition at this time because it could hurt the company’s earnings, which have been under pressure.
Silicon Systems’ financial performance has been “erratic” during the last several years, Kirby said. That uneven record can be partly blamed on the company’s vulnerability to fluctuations in the computer and telecommunications industries to which it sells it products, he said.
Silicon Systems earned $12.7 million on revenue of $120.8 million for the fiscal year ended in October, 1988. For the first quarter of the current year, net income was $2.5 million and revenue was $30.1 million.
About 75% of Silicon Systems’ products are used in computer disk drives, while 20% go into telecommunications equipment. Recently, the firm has developed microchips for the automobile industry.
