PMC Maximizes Acquisitions
|Brownridge: Restructing resulted in a 350-person layoff.|
Finding that competitors, especially Applied Micro Circuits Corp., were dining out on tales of PMC-Sierra Inc. as a "company killer," Doug Brownridge, PMC-Sierra's VP of corporate marketing, candidly talked with Electronic News last week about which products and acquisition teams have been canceled and which have more importance. Brownridge also discussed what PMC-Sierra plans to do to weather its continued difficulties until communications infrastructure spending rebounds.
During 1999 and 2000, when PMC-Sierra's stock danced well above $100, the company acquired nearly a dozen networking silicon start-ups. Because its stock was so high, the deals seemed very highly valued, in the billions of dollars. Needless to say, circumstances since then have changed.
Electronic News: Will there be a layoff?
Brownridge: Our restructuring did, unfortunately, include a reduction of our overall global workforce by 350 people, spread across operations, R&D, as well as SG&A. But we did not layoff the entire Internet Routing Division (IRD). Some of the people that were in IRD are now in our other divisions, and typically they moved with their products. The reductions in workforce were balanced across the organization and did not include whole groups of people.
Electronic News: What will happen to the Abrizio and SwitchOn groups?
Brownridge: PMC-Sierra's recent restructuring [announced Oct. 18] included a consolidation to strengthen the company. A few of our IRD products in development were canceled and the bulk of the Internet Routing products are being moved into our other three divisions: Access Products Division (APD), MIPS Processor Division (MPD) and Optical Networking Division (OND). For example, our TT1 switch fabric products from the Abrizio acquisition moved from IRD to APD and our ClassiPI packet content classification [from the SwitchOn acquisition] processor moved from IRD to MPD. Our experience was that there seemed to be a natural alignment of the IRD products into the other three divisions.
Electronic News: How much revenue will be affected by canceled products?
Brownridge: We believe the projects we have discontinued or pushed out would only have represented approximately 10 percent of our revenue over the next two to three years. By making this decision, we have been able to take down our cost structure by almost 30 percent. The combination should accelerate our return to breakeven into mid-2002 and our return to our longer-term target profit level sometime in 2003.
Electronic News: How will the market change in the future?
Brownridge: This strategy responds to the new market dynamics in which total infrastructure investment by service providers will decline below the peak achieved in 2000 and in which we expect to see a reduction in total equipment vendors, with the heaviest toll being start-ups. We have identified what we believe will be the top 25 equipment platforms over the next two to three years, and we are aligning our resources to ensure we sell the maximum silicon content into these that we can. We are, in fact, increasing our resources against these projects.
Electronic News: Have your acquisitions worked as planned?
Brownridge: Like its competitors, PMC made a number of acquisitions during 1999 and 2000 to create a full line of networking silicon. During 1999 to 2000, PMC also acquired a number of networking-silicon startups—Abrizio for switch fabrics, SwitchOn for classification co-processors, Extreme Packet Devices for traffic managers, Malleable for voice-over-packet processors, Toucan for network protocols, AANetcom for serdes (serializer/deserializer) devices, and Datum for wireless DSPs. Much of the intellectual property acquired in 2000 has resulted in some extremely successful products for PMC-Sierra. Some of these original acquisitions have been disbanded and some of the people and IP have been redeployed to other strategic projects.
Electronic News: Where do you see PMC's future in network processing?
Brownridge: PMC-Sierra has long been a major player in the high-speed PHY/Framer market, recording revenues of more than $600 million in 2000. During 2001, PMC-Sierra has announced more than 35 products compared to 26 in 2000 and 18 in 1999.