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Computer Chips

PHOTODISC

Shareholders may be cheering the massive premium that California's Semtech Corp. is proposing in its friendly bid – valued at about $500-million – for Canadian semiconductor firm Gennum Corp.

But while this particular financial transaction might be good for investors, it's bad news for the country's semiconductor industry as a whole, which has been dealt a series of blows recently in the form of other significant foreign takeovers.

Burlington, Ont.-based Gennum has agreed to Semtech's offer, which includes a whopping 125-per-cent premium over its closing price of $6.15 a share on the Toronto Stock Exchange on Monday.

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Likely to go through, the bid signals the disappearance of Gennum from the TSX – the last publicly listed semiconductor manufacturer.

Gennum is going the way of other Canadian companies in the sector, notably Zarlink Semiconductor, DALSA Corp. and Tundra Semiconductor, which over the past few years have been unceremoniously swallowed by foreign rivals.

"There has been a problem for quite some time for midsize semiconductor companies. They don't have the economies of scale of big companies and are vulnerable to takeover," said Ian McWalter, chief executive officer of Kingston-based CMC Microsystems, a not-for-profit organization that promotes university research and product commercialization.

The phenomenon is happening worldwide as companies in the $500-million-to-$1-billion range swallow smaller rivals in the $50-million-to-$200-million bracket to bulk up and better compete in an increasingly global and consolidating market, he said.

Mr. McWalter points out, however, that there remains a solid pool of expertise in the semiconductor business in Canada, and a context that is favourable to startups.

"There are lots of opportunities still, lots of knowledge of this technology in Canada. Of course, I would love to have publicly quoted companies but it's important to have the knowledge people who can do innovation," he said.

"We need to do more to get innovative companies going," Mr. McWalter said.

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Harry Page, CEO of intellectual property advisory firm UBM TechInsights in Ottawa, is saddened at the prospect of yet another significant Canadian semiconductor player being taken over.

"We're losing a lot of these Canadian companies that were nurtured and grew up here," he said. "We're becoming a satellite plant for multinationals. It's hard to watch."

It's too easy for Canadian semiconductor players to throw in the towel once they reach a certain stage in their development, Mr. Page said.

"Gennum said this was the best option to unlock the value in the company. The question is why couldn't they have unlocked that value themselves?" he said.





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