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Philips Acquires Lumileds As Agilent Cashes In On Semiconductor Group

Agilent Technologies, one of the compound semiconductor industry s biggest players, is exiting the chip manufacturing business.

The lighting and consumer electronics giant Philips has bought out the company s stake in Lumileds in a deal worth around $1 billion (see box), and the remainder of the Silicon Valley company s chip operation will be snapped up by two private equity firms.

Kohlberg Kravis Roberts (KKR) and Silver Lake Partners will take control of Agilent s semiconductor products group (SPG) after sealing the $2.66 billion cash acquisition.

That cash will be returned to Agilent investors through a $4 billion share repurchase program and Agilent will become a "pure-play" measurement company.

Speculation has surrounded Agilent s SPG for months, with hints that the group would be auctioned off, enabling Agilent to benefit from the higher margins it makes in the test and measurement and life science sectors. CEO Bill Sullivan said of the sale: "We believe that the SPG can best realize its full potential as an independent company."

"This is good news for our customers and employees," said the SPG s CEO, Dick Chang, who will continue in his role despite the switch.

Agilent is probably best known in the III-V community for the expertise in LEDs and fiber-optic components that it inherited from its parent company, Hewlett-Packard. However, it also manufactured E-mode PHEMTs at a 6 inch GaAs wafer fab in Fort Collins, CO.

But Agilent has struggled against the incumbent GaAs power amplifier suppliers in the cell-phone handset sector, according to Stephen Entwistle from the market analyst firm Strategy Analytics. And the new owners of Agilent s GaAs business will not be able to rely on a parent company as a potential customer for these products, unlike Freescale, Motorola s semiconductor-manufacturing spin-out.

With the SPG supplying such a diverse set of products to a wide range of customers, the new owners face the challenge of generating a coherent strategy, said Entwistle. Both of the equity firms stress that they take a long-term view towards their investments, and a KKR spokesperson confirmed that the new owners have no current plans to sell portions of the SPG, stating: "We intend to maximize growth for the company as a whole." Although the world-leading fiber-optic and LED divisions would prove highly attractive to prospective buyers, the GaAs division may not be so desirable in what is already a crowded marketplace.

The acquisition sees the SPG, which the new management team plans to rename before the expected close of the deal on October 31, become the world s largest privately held, independent semiconductor company. It represents the new owners first direct foray into the III-V industry. As well as having a large stake in the retailer Toys R Us and bed specialist Sealy, KKR s investment portfolio includes several technology companies, such as Austria-based lighting specialist, Zumtobel. Zumbotel s subsidiary, TridonicActo, recently signed a joint-venture deal with LED maker Toyoda Gosei (see Compound Semiconductor May 2005 p9).

Silver Lake s investments are focused solely on technology companies, and it lists disk-drive maker Seagate in its portfolio.

In Agilent s most recent financial quarter, the SPG saw a 2% drop in revenue year-on-year to $458 million. But orders were up 25% from last year, something that will undoubtedly please the new owners of the business.

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