PMC-Sierra Inc. (PMCS) announced at the close today that they are acquiring Passave, a company we have – written – about – extensively, for $300M in stock. In fact, I predicted PMC-Sierra would enter this business through acquisition, though I thought Teknovus would be the better path.
Our acquisition of Passave brings PMC-Sierra an experienced and highly innovative team with clear market share leadership in Passive Optical Networking solutions. This acquisition fits with our strategic intent to address the high-growth Fiber Access market and is aligned with PMC’s developments in Customer Premises Equipment,” said Bob Bailey, Chairman and CEO. “PON is the ultimate Triple Play access technology and is key to the build-out of the second generation FTTH-based broadband infrastructure.”
PON MACS are a great complement for PMC-Sierra’s VoIP products – all future PON ONUs (and all current ones deployed by Verizon) need to have VoIP integrated, and will soon need media gateway functionality such as content-aware processing and support for network attached storage. All of these new, complex peripherals exist in the PMC portfolio today and they will be able to leverage them going forward.
Passave has secured around $40MM/year in revenue due to nearly 100% market share of NTT’s GE-PON deployment. This will not continue indefinitely, and pricing pressure will come online once Mitsubishi Electric deploys a Teknovus solution. And as I have written before, Passave is really a second tier G-PON player.
If we see 30MM GE-PON nodes deployed by 2010, and Passave/PMC-Sierra secures 50% market share, you are looking at a total revenue stream of $300M (assuming $20 silicon B.O.M.). Considering PMC can sell additional silicon alongside these products, the purchase price is reasonable. I think they could have acheived similar results by purchasing Teknovus for less.
In short, my first take is this makes sense for both companies, though the purchase price assumes strong performance.
It is pretty obvious that Broadlight and Teknovus are the next acquisition targets. I’m still thinking Broadcom (BRCM) will buy one or both. Teknovus investors must be throwing a party based on the $300M Passave valuation.
One remaining question – what about UT Starcom’s lawsuit? Looks like we aren’t the only ones with questions.
Little late to be researching that now isn’t boys?
Update: On the con call.
Passave Revenue (My $40M guess was a pretty good swag…)
12.xM …. around a 3x increase from 2004.
42 to 100 R&D engineers (2004 -> 2005). Must be the G-PON push.
2006 (Forward looking statements from PMC Sierra)
14.4M Q1 ’06 (Impressive, more sequential growth follows)
GM %’s in high 50′s
Gut feeling – market will like this acquisition a lot.
On UT Starcom, Jeremy Bunting asked the question (my Q has not yet been taken). No real info provided, just that they plan to fix the problem quick.
Looks like they refused my question. I wanted to ask why they picked up Passave, and not Teknovus. Would have also been good to get an idea of what pull through business they expect this to generate.