Stepping off the merry go round
1 min read
The world of semiconductors used to be one huge VC fuelled merry go round. VCs pumped in some cash at the early stages, the company grew, another company bought it for a shed load of cash and the investors walked off happily. And so it went on.
Then the world changed; as the storm clouds of the global economy gathered, those VCs with investments in semiconductor companies started to look nervously at their exit strategies. Investments in semiconductor companies became the exception, not the rule.
A couple of 'big ticket' UK semiconductor start ups were ripe for an exit strategy towards the end of the last decade, but events conspired against them. One – Icera – was sold in the end to nVidia for what looked to be a modest premium on the investment when the plan must have been to take it to IPO and make a killing. In the end, a success; albeit a small success.
But the sale of Picochip to Mindspeed seems anything but; on first sight, only $60million of the $120m investment has been recouped.
Timing is everything, as they say, and Picochip – for one reason or another – seems to have been in the wrong place at the wrong time for a while. While there have been discussions, there have been no deals.
It seems the investment group wasn't going to put any more cash into Picochip and has taken what appears to be the only offer on the table. Mindspeed is paying $52m through a mixture of cash and shares. There is a carrot of sorts in the shape of a potential $25m earn out, but earn outs are often framed in such a way that they don't get achieved.
Picochip has focused on femtocells for the last few years and, to be fair, has cornered that particular market, shipping 1m devices a year. But, for various reasons, this market hasn't taken off as quickly as many thought. So Picochip found itself squeezed; the thin margins in the consumer world meant it needed more volume. But the operators don't appear to be too enthusiastic about the concept of small cells, preferring to look at them as a consumer decision.
As part of a larger organisation, the Picochip name might disappear, but its technology won't. It will have access to more resources and that will allow it to at least have a serious look at some of the ideas which have been on its 'wish list'; things it would not have been able to do on its own.
