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Wipro’s NewLogic acquisition: Our view - Views on News from Equitymaster

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Wipro’s NewLogic acquisition: Our view

Dec 20, 2005

Wipro, India’s third-largest software services exporter, yesterday acquired an Austrian chip design firm, NewLogic, for Euros 47 m (approx. Rs 2.5 bn). The company will buy NewLogic in an all-cash deal, with the structure of the deal being that Euros 21 m will be paid upfront and the balance being paid out over a period of three years on the achievement of certain financial targets. NewLogic has a headcount of 120 engineers and a 20-strong customer base, including biggies like Philips and Infineon. The company has design centres in Lustenau (Austria), Sophia Antipolis (France) and Munich (Germany). The company also has a subsidiary in the US, called NewLogic Technologies Inc. This acquisition will be included as a new business unit under Wipro’s Product Engineering Services (PES) Group, which has strength of over 10,000 employees, and said to be the largest independent group of its kind globally.

The rationale…
The acquisition of NewLogic will give Wipro enhanced capabilities in the semiconductor space. NewLogic is present in communications standards-based semiconductor IP, in areas such as W-LAN (wireless local area network) and Bluetooth IP, in each of which it has a 10% global market share. Wipro’s semiconductor and VLSI design space has around 1,200 people at present and the acquisition will enhance this to 1,320.

This acquisition will, thus, give Wipro added capabilities in the high-end space of semiconductor IP that is slated to grow at a fast rate in future. This is in line with what the managements of several companies that we have met in the recent past have told us. HCL Technologies is a strong player in this space. NewLogic’s capabilities will complement Wipro's own portfolio of IP cores and patents in wireless and wireline technologies areas, positioning the combined entity as the global leader in this space.

Till recently, Wipro was mainly present in the R&D space in the telecom vertical. Even in the past, it used to be more dependent on the equipment manufacturers and only recently started tapping the telecom service providers in order to reduce dependence on equipment makers, which tends to be a very volatile business. This acquisition will enable Wipro to move into the semiconductor space in a more meaningful manner. At present, it contributes to around 3% of Wipro Technologies’ revenues. Thus, the dependence on telecom would also be slightly reduced to that extent.

As mentioned above, Wipro will pay an immediate consideration of Euros 21 m, which amounts to around 1.5 times NewLogic’s FY05 revenues of Euros 14 m. In the past, we have seen the trend that whatever acquisitions have been made by Indian software companies, they have been of a relatively small size and more with respect to gaining competence in areas where they were not present earlier, or getting a geographical presence. From that standpoint, we believe that the acquisition of NewLogic by Wipro is a positive. It will add about 0.9% to our estimated Wipro Technologies’ FY06 revenues, which may not seem that significant, but as we mentioned above, the main factor to note is the capabilities that the acquisition will give Wipro.

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Aug 23, 2019 11:49 AM