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MaxLinear Scales Up, Diversifies

Kishore Seendripu

“Significant, but achievable.”

That is how Kishore Seendripu, CEO of MaxLinear Inc., described the big task of integrating Silicon Valley semiconductor maker Exar into his business, after two months as a combined company.

MaxLinear (NYSE: MXL) bought Fremont-based Exar for $687 million in cash, closing the deal May 12. It’s one of three major purchases that the diversified chip-maker from Carlsbad has made in a little more than two years.

MaxLinear, which reported $388 million in revenue in 2016, took out a $425 million loan to buy Exar.

“Using debt to fund acquisitions has become increasingly common in the semiconductor industry, particularly in light of the debt market environment in recent years,” Seendripu said in an email. “Exar is expected to be accretive to our cash flow, and our previous scale gave us confidence to bring on this debt. Our current plan is to aggressively pay down the debt as soon as possible.”

Thanks to strong cash flow in the combined company, MaxLinear should be able to repay $25 million of debt per quarter beginning in the fourth quarter of this year, said Quinn Bolton, an analyst from Needham & Co. LLC.

Diversifying Company

The Exar purchase fulfilled the goals of scaling up and diversifying the company, Seendripu said.

Exar serves markets that MaxLinear has barely touched, including industrial and automotive; storage and enterprises servers; and switches and routers. MaxLinear executives told analysts at a recent San Francisco conference that Exar brought a lot of new customers to their door.

The acquisition presents cross-selling opportunities, said Tore Svanberg of Stifel, Nicolaus & Co. Inc. in a research note from early June. The analyst added that the acquisition is “highly complementary” from both a product and a roadmap perspective, and should add 8 cents to 12 cents to earnings per share this year.

MaxLinear specializes in radio frequency and mixed signal products while Exar emphasizes power management and interfaces.

The combined company is slowly taking shape. “The integration process is ongoing,” Seendripu said. “As expected, it is a significant but achievable task.

“We are currently in the process of aligning our product roadmap in an effort to maximize our combined engineering resources, sales channels and platform-level product synergies. From a tactical perspective, our operations team is working aggressively to merge ERP (enterprise resource planning) systems and align our supply chains.”

MaxLinear executives told the analysts in San Francisco that the company is targeting 15 to 20 percent annual growth in the years ahead. The business turned in a compound annual growth rate of 40 percent over the five years since 2011. MaxLinear went public in 2010.

Other Acquisitions

The Exar buy follows several other acquisitions.

MaxLinear saw opportunity when Broadcom slimmed down following its purchase by Avago in early 2016. MaxLinear was able to buy Broadcom’s wireless infrastructure backhaul business for $80 million.

It closed the deal July 1.

MaxLinear bought another San Diego County chipmaker, Entropic Communications Inc., closing the deal in April 2015. MaxLinear paid $111 million in cash and issued 20.4 million shares of stock for the local company.

There was also a relatively small and recent acquisition that deserves mention: the $21 million purchase of a home networking business from Marvell Technology Group Ltd. MaxLinear paid cash and closed the acquisition in April. The business works in a home networking technology called G.hn.

Restructure, Repeat

MaxLinear counts 833 employees in all of its offices around the world.

The corporation restructured in both 2016 and 2015. It laid off 24 employees in 2016 and 87 former Entropic employees in 2015.

Employee severance expenses as well as stock compensation expenses related to the restructuring amounted to $1 million in 2016 and $5.5 million in 2015, according to a securities filing. The business did not spend any money on restructuring in 2014.

The business expects more restructuring costs related to the Exar buy in the future, it said in its quarterly securities filing from May.

Total restructuring expenses, which include lease and leasehold impairment charges, were $3.4 million in 2016 and $14.1 million in 2015. The business stopped using most of Entropic’s headquarters building in late 2015, it told investors.

In its May presentation, MaxLinear said it expects some 60 percent to 70 percent of its future revenue will come from the connected home — including home networking, satellite gateways and receivers, and Entropic’s old specialty, MoCA.

The initials stand for Multimedia Over Coax Alliance. It is another home networking technology which leverages coaxial cable in a building.

More Than 1,500 Patents

MaxLinear has big business in its sights, too.

It told investors that it will be able to serve infrastructure markets in telecommunications, including wireless communications in the 3G, 4G and 5G standards, as well as backhaul and fiber optic networks. MaxLinear also anticipates work in the data center.

Additionally, it sees opportunities in the industrial and multimarket high-power analog market.

MaxLinear told investors that it now counts more than 1,500 patents.

Seendripu did not rule out more acquisitions in the future.

“MaxLinear continues to evaluate acquisitions as a means to fill technology gaps and add scale to our business,” he wrote.

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