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LSI Covets Cable, Buys C-Cube Microsystems

Plunging into the cable sphere and advancing its "digital home" strategy, LSI Logic Corp. struck a deal last Monday to acquire chip-maker C-Cube Microsystems Inc. for the premium price of $878 million in stock.

LSI now gains access to C-Cube's line of processors, which target set-tops as well as DVD players, personal video recorders, home media servers and so-called residential gateways. After absorbing C-Cube's technology into its own, LSI believes it will be better positioned to tackle the cable, satellite, terrestrial and digital subscriber line set-top sectors.

C-Cube's customers include Sony Corp., Samsung Electronics America Inc., Motorola Inc., Pace Micro Technology plc and Philips Consumer Electronics Co. The company reported revenue of $265 million in 2000. During the last year, C-Cube has unveiled new front- and back-end silicon for digital set-tops and high-speed modems.

The agreement gave a much-needed lift to C-Cube shares, which hit a 52-week low of $7.06 during intraday trading on March 16. As of last Thursday morning, C-Cube's share price had climbed about 44 percent since the merger announcement.

As of early last week, LSI's offer valued C-Cube at more than $16 per share. C-Cube shares closed at $8.81 Friday, March 23.

If a briefing with reporters and analysts is any indication, LSI appeared to covet C-Cube's cable-targeted silicon and relationships with domestic and international cable operators above all else.

The merger "gives us immediate entrance into U.S. and European cable markets," said LSI chairman and CEO Wilfred J. Corrigan.

On the U.S. cable silicon front, LSI's toughest competitor figures to be Broadcom Corp. Corrigan estimated about 13 percent of C-Cube's revenue came from North American sales last year.

LSI, however, played up the worldwide presence the combined companies will share when the deal is completed, as C-Cube is a strong player in Europe, China, Korea and Japan.

The deal is expected to close by June 30. At that time, each outstanding share of C-Cube common stock will be exchanged for 0.79 shares of LSI stock. LSI forecast that C-Cube would begin adding to its earnings this year.

Though LSI has yet to say how the merger will affect C-Cube's 600 employees, Corrigan said the two companies' technological overlap is minimal. Each partner, however, complements the other in the satellite and terrestrial markets.

The melding of company technology is at least a year away, Corrigan added.

C-Cube employees who survive the merger will find themselves in a familiar environment, as both companies are based in Milpitas, Calif.

The sellout to LSI completes the cycle for C-Cube, which sold digital broadcasting equipment unit DiviCom Inc. unit to Harmonic Inc. for about $1.5 billion in late 1999.