Parthus boss defends merger plan

Kevin Fielding argues that critics of the proposed deal are not taking Ceva's profitability into account and that the resulting combination should create growth opportunities for investors. Jamie Smyth reports

Critics of the proposed merger between Parthus Technologies and the intellectual property arm of US-Israeli firm, DSP Group, do not appreciate the profitability of the US firm, according to Mr Kevin Fielding, Parthus chief executive. Combining the two firms should create growth opportunities that are compelling for investors, he believes.

Mr Fielding, who would take up the chief executive role at the $500 million firm - ParthusCeva - believes negative comments from some analysts and a sharp dip in the firm's share price since the merger was announced do not take account of the financial facts.

"The Ceva unit [the intellectual property arm of the DSP Group] is not a public company and doesn't make its results public. But if you look at the profitability of DSP Group, it has grown the majority of its profits from the Ceva unit."

Ceva had revenues of $25 million last year, and profit of $11 million on operating margins of 40-50 per cent, says Mr Fielding.

In contrast, Parthus has sacrificed profitability for growth and market share and the combination would be compelling for investors, he says.

Parthus's investors will be sensitive to price movements due to the sharp drop in the firm's value since 2000, when it had a market capitalisation of more than $2 billion (€2.27 billion).

It now stands at less than a quarter of this figure, and although Parthus will return $60 million to shareholders, many will still nurse substantial losses.

Mr Fielding will spend the next couple of weeks convincing analysts and institutions about the merits of the tie-up with Ceva

. Some of Parthus's largest shareholders include Barclays, MSF Investment, Capital Research and Deutsche Asset Management.

Parthus estimates the merged firm would deliver revenues of $80 million and earnings before interest, tax and amortisation of $16 million during 2003.

Although some analysts have queried the valuation of the deal, few have queried the technical justification for the proposed merger, which follows the most difficult year in the history of the semiconductor sector.

A 37 per cent annual sales slump in the chip sector during 2001 formed the background to the decision to seek a merger, says Mr Fielding. "We decided this was the time to grow and consolidate ourselves higher up the intellectual property league table," he says.

"During the late summer and autumn we looked at many companies, some of whom were in serious problems, but we couldn't see the extra value for customers."

"Then a number of customers suggest that we should work closer together with DSP Group, although they didn't say we should merge . . . It was a compelling match up," he adds.

DSP Group's intellectual property licensing arm develops the digital signal processing cores for about a quarter of the global manufactured mobile phones.

These core processors enable firms to run software on a range of devices and are licensed to dozens of semiconductors firms.

"\ can be taken and put into different applications," says Mr Fielding, "whereas Parthus is a pioneer of platform level intellectual property and takes the core and adds intelligence."

Some of Parthus' key products are global positioning system intelligence, which can enable a firm to locate a device within a few metres; and bluetooth, which enables different devices to communicate without wires.

Mr Fielding believes the marriage of the two complementary technologies will offer Parthus and DSP's customers a much more integrated service, a kind of "one-stop shop" for chip firms.

It will also strengthen the merged firm's technology proposition propelling it to number three in the IP sector and counting nine of the top 10 semiconductor firms as customers, he says. "Our intention is to lock our customers in to our own technology roadmap, to become an IBM in the services field or an Intel in the microprocessor field."

ParthusCeva would have revenues of about $75-80 million in 2003 and would be profitable, according to Mr Fielding. And the merger would position the firm well for future organic growth.

He says fears that Parthus would lose its Irish identity from the proposed merger are misplaced.

"The firm will continue to be run from its Harcourt Street office in Dublin and there will be little change for staff or management, except more time spent on planes," says Mr Fielding. There would also be no job cuts here as a result of the merger, he added.