August - 2000 - issue > Cover Feature

Speed and the cost of technology, as well as escalating expense for nontechnical infrastructure and not to mention uncertain market conditions, have forced many companies to put their IPO plans on hold. Mergers and alliances are now a viable option for many high-tech companies.

iCompression Inc. is a case in point. The Santa Clara-based chip-maker was considering an initial public offering this year, but following the dot-com shakeup and the consequent slump in the technology sector, the company decided to go in for a merger with GlobeSpan, Inc. instead. “Globespan was offering us $400 million, our employees were okay with it, so this seemed to be the right course of action for us,” says Govind Kizhepat, founder, chairman and vice president of engineering of iCompression, Inc.


IPO Alternative

As a result, not only did the company not have to go through the “lengthy and complicated [IPO] process,” but also made sure that its other infrastructure requirements like personnel and administration were taken care of without any further investment on part of the company. “For a hard-core engineering company like ours, that was definitely an issue,” says Kizhepat. “Now we can go back to being what we have always been – a core technology company.” Of course, in the process, it got 4 million shares of GlobeSpan, which are currently being traded on the Nasdaq at 1001/2 per share.

Considering the fact that iCompression had previously raised $135 million in its second round funding, this is a significant leap in terms of company valuation. And this is exactly what makes “getting acquired” so attractive. “The ground rule for mergers and alliances is that one and one should add up to three,” points out Kizhepat. The recent acquisition by GlobeSpan, Inc. did exactly that for iCompression.


Acquiring Advantages

And what does GlobeSpan stand to gain? A number of things, according to Kizhepat. For one thing, New Jersey–based GlobeSpan was looking for a foothold in Silicon Valley, a goal achieved by the acquisition. Secondly, iCompression, though only four years old, is already a veteran in the encoding chip market. Focused on developing MPEG-2 encoding technologies for the consumer market, iCompression was the first to develop an integrated MPEG-2 audio and video encoder chip in 1998.

Because other MPEG encoders encode video alone, iCompression’s chip has proved to be especially attractive in the consumer encoding-device market. And with personal video recording systems designed by companies such as TiVo and Replay Networks, becoming more and more popular, the demand for consumer encoding chips has taken off more dramatically than anyone ever expected. They have become the must-have engines for all systems designed to offer features like time-shifted viewing of television programs.

Recently, iCompression has started moving into the Voice over Packet (VoP) market, which Kizhepat claims is the most logical thing for any encoding-chip maker to do now. And why not? Because its “system-on-a-chip” solutions achieve higher system performance than existing industry solutions, this allows the company to move into multiple markets without reinventing technology for each. GlobeSpan, a leading provider of integrated circuit, software, and system designs for digital subscriber line (DSL) applications, was looking to move into the voice and video market. This strategic merger with the encoding chip-maker will help in accelerating the process.

iCompression is currently also developing solutions including silicon, firmware, software drivers and reference designs that the company claims will dramatically reduce time to market for customers while enabling “unprecedented functionality and channel density.” The company’s work on new product design will enable GlobeSpan to achieve highly integrated solutions for voice, video and data applications for DSL equipment vendors.


Adding Value

Through Partnership

With several established chipmakers chasing the MPEG-2 market, including C-Cube Microsystems, ST Microelectronics, ESS Technology, LSI Logic, LuxSonor, Sigma Designs and Zoran, getting acquired by GlobeSpan was probably a smart move on iCompression’s part. “Partnering with a bigger company which has a good fit for your product, but no overlap, always adds value to your company,” says Kizhepat, commenting on the emerging trend toward mergers and alliances among today’s high-tech companies.

It was not an obvious choice, though. The uncertain market condition was certainly a catalyst, says Kizhepat, but adds that he is glad that the shake-up happened. “These dot-coms, with no intellectual capital whatsoever, were springing up like mushrooms and getting valued at enormous amounts. The shake-up is an endorsement for companies like iCompression which have solid intellectual property and actually ships a product.”