NEW YORK (The Deal) -- Applied Micro Circuits' (AMCC) recent addition of a long-time shareholder to its board could signal that the chipmaker may become more open to being acquired, in which case it could be an especially appealing target for a large rival such as Qualcomm (QCOM), according to industry sources.
The Sunnyvale, Calif.-based semiconductor company announced on May 14 that Christopher Zepf, founder of hedge fund Kingdom Ridge Capital, will join the Applied Micro board. Founded in 2007, White Plains, N.Y.-based Kingdom Ridge is one of Applied Micro's largest shareholders with a 9.9% stake.
"Chris has been a 'communications and semi investor' for a long time. He's well-respected in the space," said an industry source familiar with Zepf. "He's not on the board to collect the paycheck."
While Kingdom Ridge is a traditional, non-activist growth investor, Zepf will focus on getting Applied Micro to achieve its highest possible valuation either organically or through a sale, this person said, adding that the latter is a more likely scenario.
"With Chris on the board, the rest of the board members have to start thinking about maximizing shareholder value," this source added, explaining that Applied Micro's $567 million market capitalization makes it a good acquisition candidate. The company's shares finished trading Monday at $6.99, up 0.3%.
Applied Micro builds chips for cloud infrastructure and data center operators. Cloud infrastructure refers to the idea of storing and accessing data over the Internet rather than using physical hardware, while data centers are facilities that store equipment for collecting and processing data.
If Applied Micro explores a sale, a deal would have to happen within the next six to nine months, said another industry source familiar with the company.
"They're burning a lot of cash," this source said.
Qualcomm and Marvell Technology Group (MRVL) are the two likeliest acquirers of Applied Micro, with the former the more logical choice, according to Cody Acree, a senior research analyst at Ascendiant Capital Markets.
San Diego-based Qualcomm, which has a $108.6 billion market cap, has wanted to tap into the ARM server market, Acree explained, adding that Applied Micro's expertise in designing ARM processors would accelerate Qualcomm's efforts.
"AMCC is a very unique vehicle. It's two to three years ahead of everybody else in a market that's in high demand," Acree explained. "That's why it's ripe for acquisition."
Applied Micro could attract a price tag of between $800 million to $1 billion, according to Acree.