Applied Micro Circuits Corporation Business Information, Profile, and History

Company Perspectives:

In the face of unprecedented demand, capacity expansion and industry activity, AMCC has continued to deliver on time, on target and on budget. In fact, our lead times have improved over the past several years. This ability to deliver on our promises has earned us the highest level of credibility&mdash well as several awards--from customers, investors and the industry as a whole.

History of Applied Micro Circuits Corporation

Originally established to provide integrated circuits (ICs) to the military, Applied Micro Circuits Corporation (AMCC) has become a leading provider of silicon solutions for high-speed voice and data fiber-optic networks in the 1990s. Following AMCC's initial public offering (IPO) in 1997, the company's market capitalization rose to some $13 billion by 2000. That enabled the company to acquire several companies in 1999 and 2000, which would allow AMCC to offer a complete range of silicon IC solutions for fiber-optic networks. The company's largest acquisition involved MMC Networks Inc., which it acquired in 2000 for $4.5 billion.

Diversifying into Nonmilitary Markets: 1980s

AMCC was founded in California in 1979 as a private company to produce ASICs (application specific integrated circuits)--also known as chips or semiconductors&mdash′imarily for the military market. In the early 1980s sales to the military accounted for 70 percent of AMCC's revenue. Over the next several years the company would diversify, so that by 1987 approximately 65 percent of its chips went to nonmilitary markets.

In 1982 Roger Smullen, one of the cofounders of National Semiconductor Corporation in 1967, was named chairman of the board of AMCC. He served as CEO from April 1983 to April 1987 and would remain chairman until August 31, 2000, when he was named vice-chairman. Under Smullen's leadership AMCC would diversify and produce semicustom logic chips for engineering workstations. AMCC's chips were primarily designed for specific customer applications and were not standard production chips that could be used by several different customers. AMCC was producing chips for the aerospace, industrial, and automotive chip markets. In many cases, AMCC was the only source for particular chips.

During the mid-1980s, when most chip makers were struggling, AMCC had 11 straight profitable quarters. Sales for fiscal 1986 ending March 31 were $20.3 million. One analyst called AMCC 'a model start up.' In addition to its profitability, AMCC had technical agreements with nine companies that provided it with an inflow of technology. The companies also provided AMCC with a built-in customer base. Then in fiscal 1987 ending March 31, AMCC's sales dropped to $18 million. It was the first time in three years the company posted a net loss.

In July 1987 Al Martinez joined AMCC as president and CEO. He was formerly vice-president of the LSI Products Division at TRW Inc. His previous experience included 14 years with Motorola's semiconductor division. At the time Martinez joined AMCC, the company was in the process of moving to its new Pacific Corporate Center, expanding its total space from 43,000 to 120,000 square feet. The move would triple the company's manufacturing space, all of which was located in San Diego.

Introducing Products for Data Communications: 1990-97

During the early 1990s AMCC had two failed attempts to go public. It was a time when the entire semiconductor industry was in a slump. In 1996 AMCC overhauled its top management. David Rickey, who was AMCC's vice-president of operations from August 1993 to May 1995, was brought back as the new president and CEO. Rickey had left the company in 1995 to serve as vice-president of operations for semiconductor manufacturer NexGen Inc. NexGen was subsequently acquired by Advanced Micro Devices. Rickey's mission was to return the company to profitability, provide strategic focus, revitalize product development, and position AMCC for a successful public offering.

AMCC returned to profitability in fiscal 1997 ending March 31. The company reported net income of $6.3 million on revenue of $57.5 million, compared with a net loss of $3.7 million on revenue of $50.3 million in fiscal 1996. The company's good results enabled it to embark on a two-phase capital investment program. Over the next three years AMCC planned to invest $70 million to expand manufacturing capacity and advance its process technology. The first phase, to be completed by the end of calendar 1997, involved a $15 million investment to retool its bipolar wafer fabrication plant to handle new processes. The retooling was expected to enable the facility to produce network and interface chips with transmission speeds up to ten gigabits per second.

Phase 2 of the program would require additional financing. AMCC went public in November 1997 with an initial public offering (IPO). Approximately 5.5 million shares were offered at $8 a share. Of those, about 2.7 million were sold by the company and 2.8 million by stockholders.

In recent years the company had shifted its focus from producing ASICs to producing ASSPs (application specific standard parts). ASICs were custom products that were designed by or for only one customer and could be sold only to that one customer. ASSPs, on the other hand, were standardized products that could be designed for and used by several customers. For fiscal 1998 ASSPs were expected to account for more than half of the company's revenue. The company's products included ATM, SONET, and Fibre Channel physical layer chips, which were first introduced in 1995; PCI bus interface chips; precision clock and timing chips, which AMCC introduced in 1993; and its BiCMOS and bipolar logic array product lines.

Under Rickey's leadership the company focused its development efforts on the high-speed data communications market and discontinued several other product lines. In fiscal 1997 telecommunications already accounted for about 38 percent of sales. The company's bipolar CMOS (BiCMOS) circuitry was optimized for analog technologies. It allowed higher data transfer speeds and lower power consumption than mainstream CMOS circuits. While expanding its fabrication facility to handle the next generation of high-performance chips, AMCC was looking at more complex silicon germanium (SiGe) technology to achieve even faster switching speeds. At the time SiGe technology was being developed by industry leaders such as IBM and Analog Devices Inc. AMCC's BiCMOS products also were competing with GaAs (gallium arsenide) technology at switching speeds in the range of one gigabit per second.

Expanding Technology Through Acquisitions: 1998-2000

In March 1998 AMCC announced a secondary offering of about 3.5 million shares of stock, of which about two million were being sold by stockholders in the company. None of the selling shareholders was an officer or director of the company. The offering price was $19.375 per share, and the company realized net proceeds of $29.1 million.

In mid-1998 AMCC signed a long-term agreement with IBM to gain access to IBM's SiGe (silicon germanium) BiCMOS processes and libraries. IBM had been developing SiGe technology for a decade. SiGe process technologies were expected to accelerate AMCC's development of high-speed, SONET OC-192, ten gigabit-per-second chips with optoelectronic capability for manipulating fiber-optic signals. AMCC expected to introduce OC-192 products in calendar 1999. For fiscal 1999 ending March 31 AMCC reported revenue of $76.6 million, an increase of 33 percent over fiscal 1998. Net income more than doubled to $15.2 million.

In March 1999 AMCC acquired Cimaron Communications Corp., a developer of circuits and ASIC cores for high-speed SONET networking systems, for about $115 million in stock. The acquisition would enable AMCC to move beyond its analog physical media devices (PMDs) and mixed-signal physical-layer devices up to the next layer of network protocol, the digital layer. The acquisition was part of AMCC's strategy to strengthen its position in the telecommunications market and provide IC solutions for the high-bandwidth marketplace. Cimaron's president and CEO, Ram Sudireddy, became AMCC's vice-president in charge of digital products. Also joining AMCC was Dr. Gary Martin, a cofounder of Cimaron in 1998 and its chief technology officer (CTO), who became AMCC's CTO for digital products. Within a few months AMCC announced new products based on NILE technology acquired from Cimaron. NILE took the place of five chips and integrated them into a single device. Principal applications of the products were for high-speed data transmission networks.

In September 1999 AMCC rolled out a series of products based on the SiGe process technology acquired through its agreement with IBM. A spokesperson for AMCC explained in Electronic News, 'We believe that the market for silicon germanium will move quite rapidly. We're the first to prove that this technology is acceptable and we're now at a point where we're helping to define our customers' next-generation products.'

In December 1999 AMCC was added to the NASDAQ 100, and in January 2000 it broke ground on a new 62,000-square-foot engineering office complex on the three acres adjacent to its corporate headquarters in San Diego. For fiscal 2000 (ending March 31) AMCC reported $172.4 million in revenue, a 64 percent increase over fiscal 1999. Net income rose 184 percent to $48.6 million. Since going public in November 1997 at $8 a share, the company's stock had split twice and was trading around $150 a share. The firm had a market capitalization of some $13 billion. During the year AMCC completed a secondary stock offering of approximately 12 million shares that realized net proceeds of about $816 million. Rickey noted, 'Our growth is very indicative of an inflection point in the industry's optical revolution ... providing further affirmation of our strategy to become the premier supplier of high-bandwidth silicon for the world's optical networks.'

AMCC's acquisition of MMC Networks Inc. for $4.5 billion in stock was finalized on October 25, 2000. It was the second largest semiconductor merger in history. MMC, based in Mountain View, California, had developed Internet and cellular applications. The Israeli founder of MMC received about $520 million worth of AMCC's stock, making him one of the largest single shareholders in the company. MMC also had a development center in Israel.

MMC was considered a market leader in network processing platforms and services; it was producing second and third generation products, while other companies were struggling to get their initial products to market. In 1999, though, it lost business from two major customers, Cisco Systems and IBM, and half its revenue.

AMCC's revenue more than doubled during the first two quarters of fiscal 2001. First quarter revenue was $74.2 million, up 134 percent over the same period in fiscal 2000. Second quarter revenue increased 156 percent to $97 million. During the first quarter AMCC expanded its digital design capabilities with the acquisition of three companies: YuniNetworks, Inc.; Chameleon Technologies, Inc.; and pBaud Logic, Inc. In the second quarter the company established a design center in Bedford, New Hampshire, that would focus on ten gigabit Ethernet designs. It also completed the acquisition of SiLUTIA, Inc., a company with digital and mixed-signal products for the broadband communications market.

Having led AMCC into high-bandwidth silicon connectivity solutions for fiber-optic networks, David Rickey was elected chairman of the board on August 31, 2000. He also would continue as the firm's president and CEO. Former Chairman Roger Smullen was elected vice-chairman.

With the acquisition of MMC Networks, AMCC was strongly positioned to provide complete system solutions for the emerging intelligent optical network, including AMCC's fiber-to-switch connectivity portfolio and MMC's network processor, traffic management, and switch fabric capabilities. Having also strengthened its digital design capabilities, AMCC could look forward to offering products utilizing a combination of high-frequency analog, mixed-signal, and digital design capabilities. With more companies becoming involved in building fiber-optic networks for the high-speed transmission of voice and data, AMCC was positioned to become a leader in providing them with enabling IC products.

Principal Subsidiaries: MMC Networks Inc.

Principal Competitors: Broadcom Corp.; PMC-Sierra Inc.; Cree Inc.; Exar Corp.; Motorola Inc.; Vitesse Semiconductor Corp.; Conexant Systems Inc.; Agilent Technologies Inc.; Giga-Tronics Inc.; Infineon Technologies AG; Lucent Technologies Inc.; Maxim Integrated Products Inc.; Philips N.V.; TriQuint Semiconductor Inc.; Analog Devices Inc.

Chronology

• Key Dates:

• 1979: Applied Micro Circuits Corporation (AMCC) is founded in California and begins operations.
• 1982: Roger Smullen, a cofounder of National Semiconductor Corporation, is named chairman of the board.
• 1996: David Rickey is hired as president and CEO.
• 1997: AMCC goes public.
• 1999: AMCC acquires Cimaron Communications Corp. for $115 million.
• 2000: AMCC completes its acquisition of MMC Networks Inc. for $4.5 billion.