7 February 2011

High-speed optical IC firm GigOptix to acquire high-frequency RF firm Endwave

GigOptix Inc of Palo Alto, CA, USA, which designs modulator drivers, laser drivers and transimpedance amplifier (TIA) ICs based on III-V materials as well as polymer electro-optic modulators for high-speed fiber-optic communications systems, has signed a definitive merger agreement to acquire Endwave Corp of San Jose, CA, which designs and manufactures high-frequency RF solutions and semiconductor products for the wireless mobile backhaul communications, satellite communications, electronic instruments, and defense and security markets.

Retaining the name GigOptix Inc, the combined firm will provide high-speed, high-frequency products for optical and wireless communications. Subject to regulatory approval and approval by Endwave’s stockholders, the merger is expected to close in second-quarter 2011.

All outstanding shares of Endwave common stock (including those issuable upon settlement of outstanding restricted stock units) plus outstanding in-the-money Endwave stock options will be converted into shares of GigOptix common stock so that, immediately after the merger, such shares represent about 42.5% of all outstanding GigOptix common stock. Based on the number of shares outstanding as of end-January, about 9.1 million shares of GigOptix common stock will be issued to holders of Endwave common stock, registered stock units and stock options. Issuance will be made pursuant to an effective registration statement on Form S-4 to be filed with the US Securities and Exchange Commission (SEC).

GigOptix’s chairman & CEO Dr Avi Katz will maintain his positions as chairman of the board of directors, CEO & president of the combined firm. Endwave’s chief financial officer Curt P. Sacks will be CFO. GigOptix's chief technology officer Andrea Betti-Berutto will be CTO. Other key executives from both firms will serve on the management team. The new board will consist of all five of GigOptix’s existing directors plus two directors to be recommended by Endwave’s board (subject to the approval of GigOptix’s chairman), one of which will be Endwave’s president & CEO John Mikulsky.

“We are set to offer solutions to both the optical and microwave RF front ends that will drive continued growth,” says Katz. “Responding to the core issue of increasing bandwidth to meet customer demand has shaped the technology advancements for both companies,” he adds. “By combining Endwave’s extensive point-to-point microwave radio system knowledge and monolithic microwave IC (MMIC) product portfolio with GigOptix’s portfolio of optical modulators and broadband amplifiers, it positions us to not only expand our market opportunities, but also enables us to increase our penetration of the existing customer bases and market segments,” Katz continues. “The combined company will be able to leverage Endwave’s manufacturing and GigOptix’s high-speed fiber-optic front-end technology to provide cutting-edge solutions for next-generation 100G and 400G drivers and electro-optic sub-systems.”

It is reckoned that the merger will enable the combined firm to:

• address growing demand for high-speed solutions in both wireless mobile backhaul and optical networks by providing a one-stop-shop with a comprehensive portfolio to consolidate and simplify supply chains;

• strengthen financial performance (with estimated post-merger consolidated cash of about $16m, after payment of closing expenses and severance) and enhance revenue and deliver operational cost savings (beginning this year, and reaching about $1m per quarter in 2012);

• strengthen the combined firm's high-speed design capabilities in both point-to-point radio and optical networks while providing low-cost assembly, testing and production through Endwave’s facility in Chiang Mai, Thailand;

• leverage GigOptix’s high-speed broadband ICs, mixed-signal technologies and Thin Film Polymer on Silicon (TFPS) technology together with Endwave’s MLMS system-on-chip technology to further increase the level of integration of electro-optical front ends;

• develop electro-optical systems-on-a-chip (such as integrated drivers and modulators), electro-optical transceivers on a chip, and microwave photonic transceivers for base stations;

• consolidate GigOptix's microwave products with Endwave's MMIC product line for commercial and military applications (with the potential for expansion into the high-speed instrumentation market);

• strengthen the combined firm’s IC design capabilities in both gallium arsenide (GaAs) and silicon germanium (SiGe) manufacturing processes, enabling additional integration, functionality and cost reductions for products targeting microwave/millimeter-wave and broadband fiber optic applications; and

• strengthen 40G, 100G and next-generation 400G surface-mount technology (SMT) packaging capabilities by leveraging Endwave’s expertise in millimeter-wave SMD packaging.

“Together, we can deliver the most extensive and comprehensive product portfolio in the industry, providing customers with the highest-quality yet cost-effective technology solutions,” believes Mikulsky.

“The acquisition of Endwave, an acknowledged leader in high-frequency point-to-point radio communication systems, confirms GigOptix’s continuous commitment to support new-generation communication networks,” says Betti-Berutto. “In addition to the many technical synergies between high-speed RF microwave and millimeter-wave radio and fiber-optic network electronic designs, we see exciting growth opportunities for wireless mobile backhaul to build out the broadband communication infrastructure,” he adds. “Driven by increasing use of bandwidth-intensive smartphones and services, the same market demands that force network operators to upgrade their optical equipment from 10Gb/s to 40Gb/s and 100Gb/s and next-generation 400Gb/s force operators to upgrade their mobile backhaul equipment to higher frequencies into the 71–95GHz E-band to support the increased bandwidth generated from cellular networks,” Betti-Berutto continues.

“As with all transactions based upon our initial 2007 Strategic Plan of inorganic and organic growth [including the acquisitions of amplifier and modulator driver IC maker iTerra Communications LLC in 2007, TIA, limiting amplifier and VCSEL driver maker Helix Semiconductors AG of Zurich, Switzerland and polymer electro-optic modulator maker Lumera Corp of Bothell, WA, USA in 2008, and ASIC designer ChipX Inc of Santa Clara, CA, USA in 2009], this merger with Endwave is the next step in our long-term vision of building the industry’s premier supplier of front-end solutions for high-speed optical and microwave RF communication links, based on solid financial foundations,” says Katz. “We look forward to furthering our leadership position as the only pure-play provider of electronic devices for high-speed fiber-optic and wireless communications covering all applications, all speeds and all distances,” he adds.

“Adding Endwave’s products and manufacturing capabilities to the GigOptix catalog will further simplify our customers' supply chain as we become the one-stop shop for solutions that address the demands of both the optical core and the mobile backhaul networks,” Katz continues. “The combined company will have a strong balance sheet (with about $16m of cash), a significant revenue base and — together with the optimization of the sales, marketing, and operations teams — we have a clear short-term path to profitability.”

Both GigOptix and Endwave will formally announce their respective fourth-quarter and 2010 year-end financial results on 24 February. However, according to preliminary results, GigOptix expects Q4 revenue of more than $8m (up more than 10% on Q3’s $7.2m, exceeding guidance of 7–10%) and adjusted EBITDA of more than $1.1m (up $0.3m on Q3). For full-year 2010, GigOptix expects revenue of $26.9m (up 81.2% on 2009's $14.8m) and adjusted EBITDA of $1.9m. Cash and investments as of end-2010 are estimated at $4.3m.

Endwave expects Q4 revenue of $4.1m (level with Q3) and adjusted EBITDA of –$1.8m. For full-year 2010, revenue should be $16.7m (down 14.3% on 2009) and adjusted EBITDA –$6.7m. Cash and investments as of end-2010 are estimated at $23.5m.

Tags: GigOptix Endwave

Visit: www.gigoptix.com

Visit: www.endwave.com

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