Contact: Scott Denne
Inphi picks up most of Cortina Systems for $126m in order to boost its profit margins. The purchase adds revenue but brings few opportunities for additional growth. Both companies make optical components for carrier networking devices and though there is little overlap in their product offerings (Inphi tends to target higher-speed applications), there is significant overlap in customers and little room for cross-selling.
What Cortina does have, says Inphi, is a stable business with gross margins in the high-60% range and $20m in quarterly revenue, compared with Inphi’s $33.9m in revenue last quarter and gross margins that are typically a few percentage points above 60%.
The deal brings Cortina’s investors, many of whom have been backing the company since 2001, close to an exit (Inphi isn’t buying the target’s digital home networking assets, which make up 15% of its business). Nearly all of Cortina’s growth came in 2006, when venture capitalists pumped $134m into the company to fund the acquisition of Intel’s networking components division. Cortina came close to an exit five years later when it filed for an IPO, but that never got out the door. The company logged less than $100m in revenue last year, compared with sales that hovered at about $140m annually in the first four years following the Intel deal.
Inphi doesn’t expect to return Cortina to growth. It anticipates that the target’s revenue will hold steady for the next four years as its carrier business tapers off and sales of datacenter networking components expand.
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