On Thursday, Hewlett-Packard Co.s original semiconductor business will have a go of it yet again.
Avago Technologies, which spun out of Agilent Technologies, which in turn spun out of HP in 1999, began operations on Thursday as the worlds largest privately held fabless chip company.
The firm will employ 6,500 employees worldwide, with headquarters on San Jose and Singapore. Revenue is expected to total $1.5 billion during 2005.
Agilent sold its chip business for about $2.65 billion this past August to a team of investors including buyout specialists Kohlberg, Kravis, and Roberts, Silver Lake Partners and GIC, a Singapore government agency.
Like Analog Devices and National Semiconductor, two companies with histories in analog and mixed-signal components, Avagos product portfolio is decidedly bland: the company claims it leads the market for infrared transceivers and optical mouse sensors, as well as photo-IC optocouplers and filters used in wireless devices.
The group is also responsible for the printer ASICs that at one time drove HPs printer line.
“It captures all of the IP capability of a highly diversified set of technologies and products,” said Dick Chang, the companys president and CEO, in an interview Thursday.
“Were not a pure-play optoelectronics house, not just a RF, microwave, CMOS graphics or CMOS MPU house. We have capabilities in all sorts of fields.”
This is the second time Chang has held the reins of the company; he served as chief executive from 2002 until 2004 as head of Agilents chip group, when he was replaced by Young Sohn, a veteran of Quantum and Oak Technology.
Chang returned to the CEO chair in March, when Sohn left to pursue other interests.
“I think that during the first round, when I took over for Bill Sullivan in 2002, we did a lot of cleaning up,” Chang said.
“We were heavily focused on the telecom business. With the bubble bursting, we had to adjust our portfolio focus to be more balanced. I think at the time we were 60 percent telecom.
“Today were more like 40 percent,” Chang continued. “Weve created new initiatives in wireless handsets, CMOS image sensors and optical navigation products. This time around we see great opportunity in all of our sectors.”
Avago estimates that 36 percent of its 2005 revenues derived from sales of data communications products, with 18 percent and 16 percent of sales going to the wired and wireless markets, respectively.
The remaining 19 percent and 11 percent of 2005 sales should be split between the military and consumer-electronics sectors.
Avago Looks to Mobile
Avago ranks itself second in fiber-optic transceivers, a market chased by Intel and others in anticipation of the day that the photon will work hand in hand with the electron to transfer information.
The company also ranks among the top three in LEDs and printer ASICs, according to company executives. In August, however, Agilent sold its stake in LED lighting subsidiary Lumileds to partner Royal Philips Electronics for approximately $1 billion in cash, plus $50 million in debt.
Although the Lumiled and Avago/Agilent teams worked closely together, Avago plans to partner with other firms to bolster its LED business and develop products like LED flashbulbs for digital cameras.
In searching out partners, however, Chang said the emphasis was on partners with “clean IP,” to avoid the possibility of patent suits farther down the road.
In January, researcher Shuji Nakamura won a suit involving blue LEDs against Nichi Corp., worth about 1.5 billion yen ($12.5 million).
Meanwhile, Super Vision International and its LED Alliance group of companies have sued and are being sued by Color Kinetics over LED intellectual property.
Avago is also eying the mobile phone. Although the company doesnt manufacture the high-profile radio chips or microprocessors that form the heart of the mobile phone, the company designs filters and modules to reduce power, color chip LEDs and CMOS sensors.
In addition, Avago designs value-added products like proximity sensors to automate speakerphones, position sensors to aid focusing within camera phones and ambient light photo sensors to automatically dim the display when needed, conserving battery life.
“We used to say historically, depending on phone, that we represented about $8 in the bill of materials,” said Jeff Henderson, executive vice president of worldwide sales and marketing.
“Its a truism, but thats going to vary by the type of phone out there. The reality is that in most of the phones, youll see us in RF front ends; in power modules—these show up—and in color LEDs—these still show up.
“[In] Asia and Korea in particular youll see a higher dollar content, with position sensors, even ambient light sensors in Korea.”
Market spinoffs trim the fat, helping the new firm become lighter on its feet, one analyst said.
“What first comes to mind is when Motorola spun off its semiconductor group to form Freescale,” said Jim Feldhan, president of Semico Research. “Freescale became more reactive to the market. Motorola supplies chips to other companies, but its not conceivable that they would supply chips to their competitors.”
Likewise, Avago will be able to sell ASICs to Oki or Canon,” Feldhan said. “From that standpoint, theres more opportunity.”