National Semiconductor
Acquires Cyrix
by Randy Befumo
(TMF Templr)
ALEXANDRIA, VA (July 29, 1997)/FOOLWIRE/ -- With yesterday's purchase
of CYRIX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYRX)") else Response.Write("(Nasdaq: CYRX)") end if %>, NATIONAL SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NSM)") else Response.Write("(NYSE: NSM)") end if %> has decided to move up the semiconductor food chain and compete directly
with INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>. The deal gives Cyrix shareholders
0.825 shares of National Semiconductor for each share of Cyrix they hold,
valuing the entire deal at $529.8 million including Cyrix's current cash
and debt. Best known for competing in specialty or niche markets, the Cyrix
acquisition represents what some might call a shift in National's operating
strategy.
Given National's focus on "system-on-a-chip" applications for low-cost personal
computers and network terminals, the deal is not a complete departure for
National. Cyrix's
February
20th announcement of the MediaGX microprocessor put the company in the
same niche as National. Compaq's decision to use the MediaGX product in its
Presario 2000 Series made the small central processing unit manufacturer
even more attractive to a company like National that wanted to enter that
market, as there was a pre-existing deal to supply the largest PC-manufacturer
on the planet. Whether or not National also decides to push Cyrix's high-end
6x86 chip and go head-to-head with Intel remains to be seen, although in
a conference call held today, Cyrix management stressed that it would remain
competitive in this area.
The deal bails Cyrix out of what many analysts believed was a tenuous position,
as the company has never had enough capacity to manufacture its chips and
has never really generated enough revenues to cover the high cost structure
its business requires. By being folded into the National Semiconductor umbrella,
Cyrix may actually become break-even with its current revenues, whereas on
its own it lost $0.27 per share last quarter. As Cyrix's MediaGX combines
audio, video, and system logic functions on one chip, now that the company
has National's proven manufacturing ability to back it up, computer manufacturers
looking to make machines that cost less than $1000 may be more willing to
try the company's chips. As a Fortune 500 company that supplies some of the
largest manufacturers of networking and consumer electronics stuff, National
is not a lightweight and brings a lot of credibility to the table.
The negative for investors is that the deal will be "dilutive" to earnings
in the third and fourth quarters, meaning that they will not be as high as
previously estimated because of the number of shares being issued. What has
happened is that National has paid a higher valuation for the Cyrix's earnings
than the market currently gives National earnings, "diluting" the combined
company's earnings with more shares outstanding. The company does believe
that the Cyrix acquisition will be "accretive" going into fiscal 1999, meaning
that it will make the combined company earn more than National would have
been able to earn on its own. This means that National will probably make
around $1.60 EPS in '98 and $2.40 EPS to $2.50 in '99 given the 10% share
dilution in '98. |