Struggling chipmaker CSR brought some much-needed cheer to its long-suffering shareholders after it announced the sale of its handset connectivity business to Korean electronics giant Samsung for $310m (£199m) in cash. The business had become an expensive problem area for the group, and prospects for the slimmed-down group now look much brighter - with sales in the current quarter also expected to be at the top end of expectations.
Samsung will take over CSR's handset development and a large chunk of its location chip development operations, including 310 staff, and acquire 21 related US patents, which will be licensed back to CSR in perpetuity on a royalty-free basis. It will also take a 5 per cent equity stake in CSR worth $34m.
The deal looks sensible. An early leader in bluetooth and WiFi technology used in the mobile handset chip market, CSR has been left behind in recent years, unable to match the pace of development of larger rivals, who were increasingly integrating connectivity functions into other chips. That meant it had struggled to tap into the fast-growing smartphone market, and was relegated to the lower-margin commodity end of the handset market.
As a result of mounting losses and a plummeting share price, CSR's new management had already indicated that it would be looking to shift away from legacy technologies and into higher-margin lines, following its exit from the similarly commoditised set-top-box segment. "CSR could not compete in the handset combo market," says Peel Hunt analyst Alex Jarvis. "A focus on higher-margin niche markets clarifies the investment case and should provide much better returns."
He believes the move could prompt a re-rating of its shares, which have traded at a significant discount to peers such as Arm and Imagination Technologies, which have had more success selling to high-end smartphone and tablet markets. Post-disposal, CSR will focus on five key areas, which include in-car entertainment and imaging, areas in which it enjoys a number one market position and higher gross margins of around 55 per cent, and which are growing at mid-teens rates annually. While the discontinued lines generated sales of $185m in 2011, Mr Jarvis says that was lower than expected and "can therefore be more quickly replaced", while around $47m of costs will also transfer to Samsung.
