Dec. 16--A former crown jewel of the Lehigh Valley economy is changing hands, again.
Avago Technologies Ltd., whose semiconductor chips are used in Apple products, announced Monday it would buy LSI Corp. of San Jose, Calif., for $6.6 billion.
In 2006, it was LSI that was doing the buying, taking over Agere Systems of Hanover Township, Lehigh County. LSI has retained a major presence at the old Agere campus next to Route 22 ever since, employing 720 engineers and other high-tech workers there today.
Agere traced its roots to AT&T's research division, the renowned Bell Labs. Some of Bell's innovations were developed in the Lehigh Valley, and its factory on Union Boulevard in Allentown was the site of the first production line for transistors.
Today, LSI's chips are sold to a range of customers, primarily for storage devices such as hard disks and flash drives.
"This transaction provides immediate value to our stockholders, and offers new growth opportunities for our employees to develop a wider range of leading-edge solutions for customers," LSI Chief Executive Abhi Talwalkar said in a joint news release with Avago. "Our leadership positions in enterprise storage and networking, in combination with Avago, create greater scale to further drive innovations into the datacenter."
Avago, which has headquarters in both San Jose and Singapore, already has a toehold in the Lehigh Valley. In April, it announced its $400 million purchase of CyOptics Inc., a maker of fiber-optic components in Breinigsville.
At the time, CyOptics employed 875 people worldwide, including 335 in Breinigsville and 25 in South Plainfield, N.J.
Avago is funding its LSI acquisition with a $4.6 billion term loan from a group of banks, a $1 billion investment from private equity group Silver Lake Partners and $1 billion of cash in hand. Its cash offer of $11.15 per share is a 41 percent premium to LSI's Friday closing price.
Avago, which designs, develops and supplies analog semiconductors, said the deal would immediately add to free cash flow and earnings per share on an adjusted basis, and would help save $200 million in annual costs by the end of the fiscal year ending Nov. 1, 2015, the first full fiscal year after the deal closes.
"This highly complementary and compelling acquisition positions Avago as a leader in the enterprise storage market and expands our offerings and capabilities in wired infrastructure, particularly system-level expertise," Avago CEO Hock Tan said in the news release. "This combination will increase the company's scale and diversify our revenue and customer base.
Avago's revenue for the fiscal year ended last month was up 7 percent, to $2.52 billion. Meanwhile, LSI's revenue through the first nine months of this year is down 7 percent -- to $1.77 billion.
"As we integrate LSI onto the Avago platform, we expect to drive LSI's operating margins toward Avago's current levels, creating significant additional value for stockholders," Tan said.
Asked what this portends for Lehigh Valley employees, LSI spokesman Dave Miller replied: "I can't speculate on what it might mean for a specific site as we haven't begun the integration process."
The transaction, already approved by the boards of directors of both companies, is subject to regulatory approvals in various jurisdictions, as well as to the approval of LSI stockholders. It is expected to be completed in the first half of next year.
Before LSI bought Agere seven years ago, Agere had been at the center of an ill-fated regional high-tech dream. That was in the late 1990s, when Agere was still a division of Lucent Technologies, itself a spinoff of AT&T's Bell Laboratories' Western Electric division. Economic development officials then envisioned the division as the future hub of a cluster of semiconductor companies that would create high-paying skilled jobs for local residents.
After all, it was the world's No. 1 maker of microchips for cellphones and other communications devices, and No. 2 in optoelectronic devices. Optoelectronics is high-speed data and voice communication that travels as beams of light over the glass strands known as fiber-optics.
The company employed 10,250 people between the Lehigh Valley and Reading area when Lucent spun it off as an independent business in 2001.
Summing up those euphoric times, Agere CEO John Dickson rented a billboard on Route 22 near Bethlehem reading: "Move over, Silicon Valley. Here comes Lehigh Valley."
Agere's initial public offering ranked as the fifth-largest IPO in U.S. history, netting $3.6 billion.
And yet, the dream had already begun to vaporize by that point. The collapse of the tech industry that year hit Agere especially hard.
Once fast-growing tech markets began to shrivel as the U.S. economy slid into recession, with optoelectronics and fiber-optics suffering especially hard hits. Agere lost almost $4.5 billion over just two quarters in 2001.
Thousands of layoffs, plant closings and extensive restructuring could not lift Agere off its knees, even as other chipmakers rebounded.
As the tech boom caved in, Agere trimmed thousands of jobs through a wrenching series of layoffs. In August 2002, the company began to get out of optoelectronics and phase out local manufacturing operations, becoming a shell of its former self.
LSI ended up acquiring Agere in 2006 in an all-stock deal worth $4 billion.
Reuters contributed to this story.
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