Compound Interest Spurs Offer for Chip Maker

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International Rectifier Corp.’s $3 billion acquisition by Germany’s largest chip maker grows from an obscure chemical compound: gallium nitride. Put simply, International Rectifier was ready to use it and Infineon Technologies wanted it.

The compound was a major reason why Infineon of Neubiberg is willing to pay such a premium for International Rectifier. Prior to last week’s announcement, shares of El Segundo’s International Rectifier were trading at about $26; Infineon offered $40 a share. Of course, when word of the deal reached investors, they snapped up the stock, which shot past $39, making International Rectifier one of the biggest gainers on the LABJ Stock Index. (See page 56.)

So what is gallium nitride and why did Infineon agree to pay such a high premium for International Rectifier to get access to it?

Gallium nitride conducts electricity efficiently without generating much heat. The compound is already used in Blu-ray disc technology, light-emitting diodes and other applications. When coated onto semiconductor chips, it can allow them to operate at high voltages without melting.

International Rectifier built its business on low-voltage semiconductor chips to manage the power flow in satellites, cars, lighting systems and aircraft. But as these systems have become more complex and have to handle many tasks simultaneously, a there has been a growing demand for high-voltage chips. So International Rectifier has been developing high-voltage chips using gallium nitride.

Christopher Rolland, semiconductor industry analyst with FBR & Co. in New York, said Infineon has been using an older technology for its high-voltage chip business.

“The gallium nitride technology was very attractive for Infineon, not only because they can expand their business but also as a defensive move, so their chips won’t have to compete with this newer technology,” Rolland told the Business Journal. “They bring this new competing technology in-house.”

The deal must still be approved by the boards of both companies. Approvals are also required by government officials in the United States and Germany.

Bloomberg News reported that Infineon’s chief financial officer said he expects job cuts at International Rectifier.

A spokeswoman for International Rectifier declined to comment on the layoffs. She also said the status of current Chief Executive Oleg Khaykin will be determined.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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