Why Macom's AppliedMicro Circuits Deal Could Benefit Intel

For years, Intel (INTC) has been dogged by concerns its growing and highly profitable server CPU business will bleed market share and see margin pressure as CPUs relying on ARM Holdings' (ARMH) micro-architectures gained ground. As several major chipmakers unveiled plans to launch ARM-based server chips, those concerns naturally grew.

Those fears have ebbed over the last years as various chipmakers have either cancelled or downplayed their plans to launch ARM-based server CPUs. The details surrounding the acquisition of one of the young market's leaders is a fresh sign the fear has been overblown, at least for the near term.

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Macom, which sells a variety of specialized RF and optical chips for telecom, aerospace and defense hardware, announced Monday it's buying telecom and data center chipmaker AppliedMicro Circuits  (AMCC)  for $770 million in cash and stock. The price represented a 15% premium to AppliedMicro's Friday close at the time of announcement; the premium is closer to 12% following Macom's 4.1% Monday decline.

Macom talks up the strategic value of AppliedMicro's portfolio of high-speed carrier and data center connectivity chips, declaring the deal will let it "provide all the requisite semiconductor content for optical networks -- analog, photonic and PHY -- from the switch to fiber for long haul, metro, access, backhaul and Data Center."

As is the case for many other recent chip industry acquisitions, big cost and tax synergies are promised. There are some parallels here with Macom rival Microsemi's (MSCC) purchases of Ethernet chipmaker Vitesse Semiconductor and telecom/storage chipmaker PMC-Sierra.

However, Macom plans to divest AppliedMicro's Compute business, which is headlined by the company's X-Gene and Helix ARM server CPU lines, within 100 days of the deal's closing. The business is declared to be "well-positioned but nonstrategic."

Regardless of how "strategic" it is to Macom, it says something that one of the most prominent ARM server CPU operations is an afterthought in a sub-$800 million acquisition, two years after its first chips shipped. X-Gene CPUs have found their way into Hewlett Packard Enterprise (HPE) servers and storage systems, and AppliedMicro has also reported of sales to an unnamed major Asian data center owner. However, the company's total Compute business sales over the last 12 months, including sales of non-ARM chips, were just $66 million.

Meanwhile, Samsung (SSNLF) and Nvidia (NVDA) have already backed off plans to go after the ARM server CPU market, and would-be market participant Calxeda shut down in late 2013. And while Intel arch-rival AMD (AMD)  has launched an ARM server chip code-named Seattle, it has pushed back the launch of chips based on a custom ARM core code-named K12, and appears more focused on releasing server chips based on its new Zen CPU cores, which rely on the x86 architecture also used by Intel CPUs.

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