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LSI Agere merger creates storage, networking and CE chip giant

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Long standing semiconductor specialist LSI Logic, which leads in the provision of chips which underpin enterprise high end storage systems, has merged with Agere Systems, a company with a similar product set, in a deal valued at around $4bn.

LSI stock fell slightly on the news and today the company is valued at $3.73bn while Agere has risen in value to $3.36bn, in line with the transaction price. LSI will be the surviving brand name and the company also made moves to sweeten the deal by announcing a $500m stock buy back.

Agere is mostly about network processors, gigabit ethernet switches, DSPs and network attached storage, while LSI is in all of those businesses, plus it offers DVD and DVR processor chips, advanced codecs for its DSPS and was, until recently, providing the chips that underpinned the iPod MP3 media processor for PortalPlayer. This deal was lost earlier this year to Samsung and had a $100m-plus knock on effect at LSI Logic which physically prepared the PortalPlayer chip masks for United Microelectronics in Taiwan to build.

LSI is also a Mobile DTV Alliance member, so was clearly targeting DVB-H and other handset designs, probably with its DSP chips.

The two have entered a definitive merger agreement under the terms of which Agere shareholders will get 2.16 LSI shares for each share they own.

The companies have a combined revenue of $3.5bn for the past year operate in 20 countries, and employ 9,100 staff and have 10,000 issued and pending US patents.

The merger looks like a straight combining of interests in and around storage, which will now dwarf the CE chips that LSI made, which could mean that this may be spun out later to allow the chip company to further specialise on enterprise, rather than consumer chips.

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