Dialog and Atmel, 2 cultures to build 1 successful company ?

Consolidation is on-going in semi industry, as we learn that Dialog Semi just announced the acquisition of Atmel. Is it a good news for Atmel, or for Dialog ? Apparently not for the stock market, as Dialog stock went down by 20% within the last few hours… But we can try to look more in-depth at the potential synergy between these two companies’s product port-folio and is such acquisition makes sense when looking at the market segments they target.

In the 1990’s, Dialog was part of Temic (semiconductor subsidiary of Daimler) up to a management buy out in 1998 creating Dialog Semiconductor Plc. It took some time to take the right decision : become completely fabless and focus on high volume consumer products. In 2005, the wireless segment was on it way to become the largest in term of volume, growth and relative semiconductor content per system, and Dialog was delivering 600M Audio-codec IC, the company revenue was about $160M. Within 10 years, Dialog revenue has grown up to $1,150 M or with a 40% CAGR during 2014-2010. The revenue split below shows that most of the revenue is made in the mobile industry, with mixed-signal diversified products : power management, audio and display. Nevertheless, Dialog is also preparing the future offering wireless audio and smart Bluetooth IC.

Dialog CEO is Jalal Bagherli and Jalal was part of the TI ASIC Europe management team in the 1990’s, as was for example former ARM CEO Warren East. Being ASIC FAE with TI at that time, I am not surprised by Jalal (or Warren) success as there were many excellent peoples in this group, excellent in marketing and business… and I learnt a lot!
Being with Atmel in the 2000’s I remember that the company was one of the leaders on the Flash market, but the founder and CEO Georges Perlegos understood that diversification towards Application Specific Products (ASIC and ASSP) was a good move. In year 2000, Atmel had revenue of $2B, more than $1,500M of the revenue was coming from Flash and around $300M from ASIC and AVR microcontrollers. But Atmel not only wasn’t fabless, but was acquiring fab in 2001-2002… George Perlegos didn’t survive to the internet bubble crash effect and the company is driven since 2006 by Steven Laub, a financial industry veteran.

Just one point: I have a huge respect from Georges Perlegos, owner of Flash essential patents and able to start a semi company from scratch and drive the revenue up to $ 2 billion. He just thought that “real men have fab” at the time Atmel should have gone fabless…

Let’s fast forward to 2014 results and port-folio. Atmel revenue is now $1,413M in 2014, for an income of $32M (to be compared with 2014 income of $138M for Dialog). Very interesting is the split by product family: non-volatile memory represents 12% of total NR, or $150M, when Microcontroller weight 70%, or about $1B. Flash product line is almost dead, Atmel is almost fabless, and the Microcontroller segment is, by far, the larger. This segment deserves a definition (from Atmel’s Annual report) as it aggregates wireless radio, touch product family or mobile sensor hub:

Microcontroller. This segment includes Atmel’s general purpose microcontroller and microprocessor families, AVR ® 8-bit and 32-bit products, Atmel ® | SMART TM ARM ® based products, Atmel’s 8051 8-bit products, designated commercial wireless products, including low power radio and SOC products that meet Bluetooth, Bluetooth Low Energy, Zigbee and Wi-Fi specifications, Atmel’s maXTouch capacitive touch product families and optimized products for smart energy, touch button, and mobile sensor hub and LED lighting applications.

We have on one hand a company focusing on mixed-signal IC and the mobile industry and well-managed by Jalal Bagherli (remember the 40% CAGR in revenue for the last five years), realizing over $1B on a very competitive market at the end of the crazy growth priod. Dialog has started to diversify (BTLE, power conversion,…) and think about emerging market like IoT. On the other hand, Atmel has accomplished a complete revolution and built a strong microcontroller product line, from 8-bit 8051 to 32-bit SMART ARM based family (probably the industry best line today), weighting almost $1B. Atmel’s product can address various (any ?) market segments, especially including emerging segments like wearable with microcontroller, wireless and sensors when Dialog knows how to design successful ASSP targeting one precise segment. That’s the type of synergy we can expect to be successful and the product overlap is minimum with BTLE, but selecting Smart Blutooth to target emerging application is rather a smart decision. As usual, the success of this merge will depend on the merge of two cultures.

As far as I can see from their respective annual report, one company has a strong marketing culture (product positionning, target market, are clearly explained…) when the other is clearly financial oriented (you will like the annual report if you like crunching data). The merged company success will probably require that one of these two culture take over…

Eric Esteve from IPNEST –