Peregrine Semiconductor, IBM in Joint Venture
MANUFACTURING: S.D. Company Reports Increases in Sales, Work Force
Monday, May 17, 2010
Peregrine Semiconductor Corp. has long produced its chips used in wireless applications in Asia, but its latest announcement of a joint venture with IBM would create their cutting edge, radio frequency products in Vermont.
The news released May 10 on the joint venture with Big Blue didn’t contain any dollar estimates on the investment by the parties, but a Peregrine spokesman said it was in the “multimillions.”
Privately held Peregrine Semiconductor (no relation at all to the former software firm Peregrine Systems Inc.) has been ramping up its production in recent years, propelled by an increasing global demand for its proprietary chips that make cell phones and other mobile devices work faster.
“Our growth has to do with wireless devices becoming more complicated. The more complicated they get, the higher value that our technology provides,” said Rodd Novak, Peregrine’s chief marketing officer.
Last year, Peregrine produced about 170 million integrated circuits or chips. It’s targeting about 215 million this year.
About 60 percent of the chips are used in cell phones and an additional 26 percent are contained in cell transmission stations, cars and set top boxes, Novak said.
Dominant Share of Market
Peregrine’s business is based on its proprietary silicon on sapphire technology, a formula it has been perfecting since its founding in 1990. The technology differs from earlier ways of making the chips that connect to a variety of antennas that are necessary because of the variety and complexity of the data being transmitted.
“Until now, it’s been fairly easy to switch between three to four antennas, but now (new phones) have to switch to sometimes nine antennas,” said Will Strauss, an analyst covering the semiconductor industry for Forward Concepts Co., based in Tempe, Ariz.
“(Peregrine) is providing a more complete solution than anyone else and seems to be getting a dominant share of the WCDMA market,” Strauss said, referring to wideband code division multiple access. The technology is part of the newer, third-generation phones that transmit music and video and include Internet access.
Novak said the introduction of Apple Inc.’s iPhone and similar high powered devices that need more powerful and quicker chips is driving demand for Peregrine’s products. This year, the company’s revenue should exceed $100 million, compared with last year’s sales of about $72 million, the company said. The firm became profitable last year.
While top line growth has been escalating, Peregrine’s employment increased by about 40 people in the past year to 218.
Supplying Electronic Device Firms
Like other major telecommunications firms such as San Diego’s Qualcomm Inc., Peregrine is a “fabless” maker of chips, outsourcing the manufacturing. Its three plants are located in Japan, South Korea and Taiwan. The company also operates four design centers — in San Diego, New Hampshire, Tokyo and France.
The headquarters site in Sorrento Valley processes about 90 percent of the manufactured chips: cutting, testing and packaging them for its customers, which are the module manufacturers and suppliers to major electronic device companies. The largest customers are Murata Manufacturing Co. Ltd., Epcos AG and Hitachi Ltd.
Novak said the market for sapphire-based devices has been growing at better than 50 percent annually, and should reach about 60 billion this year, but by 2012 is expected to hit about 120 billion.
Among the biggest drivers of this market is the usage of LEDs (light emitting diodes) in more devices, said Strauss.
The inclusion of white LEDs in such things as televisions, laptop computers and other devices has resulted in lower prices and enabled Peregrine to produce its products at more competitive prices, he said.
On the Fast Track
Getting Peregrine to its current stage of fast growth took longer than at least one of its founders anticipated.
“We always had the belief that Peregrine had an outstanding potential to get huge,” said Rory Moore, one of three founders, along with Ron Reedy and Mark Burgener. The latter two provided the intellectual capital to the venture, while Moore provided some $250,000 to launch the company from a small office in Point Loma about 20 years ago.
At the outset, Peregrine obtained about $18 million in angel investment, which was later followed by several rounds of venture capital funding. Novak didn’t provide the total venture investment, but the outside investors are believed to own a majority of the company, Strauss said.
Given its rapid growth and successful market gains, some say it’s only a matter of time before it goes public. Peregrine itself said it is exploring this route, which may occur in 12 to 15 months.
Yet selling the firm to a much larger and cash rich corporation may also be an alternative, Strauss said.
“It could look very attractive to someone like a Qualcomm.”
