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PCIe switches are important components in many computing, communications and consumer products. The combination of IDT and PLX would hurt competition and lead to higher switch prices, lower innovation in the marketplace, and reduced customer service.
Richard Feinstein, Director, FTC Bureau of Competition
FTC Issues Complaint Seeking To Block Integrated Device Technology, Inc.’s Proposed $330 Million Acquisition Of PLX Technology, Inc.
Combined Firm Would Have 85 Percent of Market for Specialized Computer Switches
December 19, 2012
The Federal Trade Commission issued an administrative complaint seeking to stop electronics component manufacturer Integrated Device Technology, Inc.’s proposed $330 million acquisition of PLX Technology, Inc., a deal that allegedly would give the combined firm a near-monopoly in the market for a type of integrated computer circuits called PCIe switches, which perform critical connectivity functions in computers and other electronic devices widely used by American consumers and businesses. The Commission also authorized the staff to seek a preliminary injunction in federal district court or other relief necessary to stop the deal pending a full administrative trial.
“PCIe switches are important components in many computing, communications and consumer products,” said Richard Feinstein, Director of the FTC’s Bureau of Competition. “The combination of IDT and PLX would hurt competition and lead to higher switch prices, lower innovation in the marketplace, and reduced customer service.”
Headquartered in San Jose, California, IDT is a publicly traded company that makes a range of semiconductor components used in communications, computing, and consumer applications. In its last fiscal year, the company had revenues of $526.7 million, of which it attributed $19.6 million to its PCIe switch business. IDT currently is the number two firm in the world-wide PCIe switch market, behind PLX. Under a merger plan signed on April 30, 2012, IDT proposes to acquire PLX for approximately $330 million.
PLX is a publicly traded company, with its headquarters in Sunnyvale, California. In 2011, it had sales of $115.8 million. PLX has about 200 employees and designs a variety of integrated circuits, including PCIe switches. PLX is the industry leader in PCIe switch manufacturing and sales.
PCIe switches are complex integrated circuits that use the PCI Express data transfer standard to enable interconnections between computer processor chips and various endpoints in computer systems, such a memory or graphic cards, by creating additional contact points between a computer processing unit and these devices.
According to the FTC, IDT and PLX are each other’s closest and most direct competitor in the nearly $100 million world-wide market for PCIe switches. IDT’s proposed acquisition of PLX would give the combined firm a share in excess of 85 percent of the market, according to the FTC.
The FTC’s complaint states that customers traditionally have used the competition between IDT and PLX to play one company against the other to achieve lower prices, and that the proposed transaction would eliminate this beneficial rivalry.
The intense competition between IDT and PLX has benefitted the companies’ customers, the complaint states. In the past, competition between the two firms has led them to offer lower prices, more innovative features, and better customer service.
In addition, the complaint alleges that the proposed acquisition would lead to an increase in pricing power by the combined IDT/PLX for PCIe switches. Combining the two dominant firms in the market, the FTC contends, also would lead to higher prices, reduced innovation, and lower-quality products for consumers. For example, IDT and PLX also are the only firms offering 3rd generation PCIe switches today, and this head-to-head competition would be eliminated by the proposed acquisition. The two companies also compete by offering a range of customer support services to their customers.
IDT and PLX also compete to improve their products by adding innovative features and functionality to their switches. For example, IDT was the first company to offer a switch function called spread spectrum clocking which reduces electromagnetic interference, and PLX had to respond with a similar offering to remain competitive. The complaint alleges that the proposed acquisition would eliminate this innovation competition between the two companies.
The Commission vote approving the administrative complaint was 4-0-1, with Commissioner Maureen K. Ohlhausen recused. The administrative complaint was issued today, and a public version will be available on the agency’s website shortly. The evidentiary hearing is scheduled before an Administrative Law Judge at the FTC, beginning on May 20, 2013.
The Commission vote authorizing the staff to seek a preliminary injunction in federal district court also was 4-0-1, with Commissioner Maureen K. Ohlhausen recused.
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