Shoring up copper data center, PCIe house PLX acquires 10GBase-T PHY specialist Teranetics

SUNNYVALE, Calif. -- Data center PCI Express platforms provider PLX Technology [NASDAQ: PLXT] has signed a definitive merger agreement to acquire all of the outstanding shares of capital stock of Teranetics, Inc., a privately held fabless provider of mixed-signal semiconductors designed to drive 10 Gigabit Ethernet over copper physical layer (10GBase-T PHY) signal transmission technology.

Teranetics specializes in integrated single-chip implementation of single-port and dual-port 10GBase-T PHY silicon. Chips enable 10 Gigabit rates over the widely installed base CAT6 and CAT6a cabling. Teranetics' says its products allow data centers and enterprise networks to increase scalability and improve throughput while lowering the cost of ownership for 10 Gigabit links.

"This acquisition installs a third leadership position into our product portfolio," said Ralph Schmitt, president and CEO of PLX. "Teranetics has successfully solved difficult system issues with 10 Gigabit Ethernet plaguing the data center. This has allowed them to ramp their products toward critical customers. PLX is fully committed to this market and will continue to invest in future PHYs and other IP to bring high-performance system-level products to market."

Under the terms of the merger agreement, PLX Technology will acquire Teranetics in exchange for 7.4 million shares of PLX valued at approximately $27.6 million based on today's closing price, cash of approximately $1.3 million and two promissory notes aggregating approximately $6.9 million. PLX will also assume approximately $18 million of Teranetics corporate obligations, including indebtedness, transaction expenses incurred by Teranetics and cash bonuses payable to Teranetics employees.

The first note will be for $5.4 million due one year from closing and the second will be for approximately $1.5 million due three years from closing. The acquisition has been approved by both companies' boards of directors. The acquisition, which is subject to satisfaction of certain closing conditions, is anticipated to be completed in early October 2010. Prior to signing the merger agreement, PLX also made a $1 million bridge loan to Teranetics.

As 1 Gigabit Ethernet networks are upgraded to 10 Gigabit bandwidth, suppliers of enterprise switches, NICs, and adapters are shipping products that use Teranetics' 10GBase-T chip technology. As more servers with 10GBase-T on motherboards start to become common, demand for these end products will likely accelerate. The Linley Group estimates that over four million 10G ports will ship in 2012, and over 22 million in 2014. Total potential for this market will take years to develop, similar to the transition from Fast Ethernet to 1 Gigabit Ethernet. Today, 1 Gigabit Ethernet is most dominant in the data center, with over 200 million switch ports shipping annually.

Linely also posits that PCI Express and 10G Ethernet have their advantages and will continue to coexist as complementary technologies in the data center. PLX will seek to leverage its unique leadership position in PCIe technology and IP with these two dominant IOs to bring out new architectures for future data centers and to tap further into the $2 billion Ethernet semiconductor market. Future solutions may take advantage of both technologies while leveraging the company's range of switching fabrics and high-speed analog and SoC capabilities to increase performance, lower power consumption and reduce overall system costs.

"By joining forces with PLX, an established leader in server and data center connectivity, Teranetics gets the framework essential to scaling our business and strengthening our ability to win," said Nersi Nazari, president and CEO of Teranetics. "With our combined portfolios of enterprise PCI Express switches and 10G Ethernet PHYs, and our common customer base, we envision the newly merged company dominating the backbone of the data center market."

Conference Call

The companies combined management team will host a financial analyst and investor conference call on Friday, September 24, at 8:00 a.m. PDT. The call can be accessed live at 719-457-2634. A slide presentation will accompany the conference call. To view the slides, please visit the PLX Investor Website at http://www.plxtech.com/investors/news_events. A replay of the conference call will be available on the PLX Investor Website beginning September 24, at 11:00 a.m. PDT and ending October 1, at 11:00 a.m. PDT. The replay dial-in number is 719-457-0820; Passcode: 5708949.