Financial Update: SCO Lays Off 190 With Caldera Deal. Strong Earnings At National Semicond. Cypress Buys Silicon Light Machines.

September 15, 2000

SHORT TAKES

SCO LAYS OFF 190 WORKERS WITH CALDERA DEAL

San Diego, CALIF. — Santa Cruz Operation will lay off 190 people and take a $5 million to $6 million charge this quarter as part of its sale of Unix operating system software and services to Linux company Caldera Systems. The layoffs, 19 percent of the company’s work force, will occur in the parts of the business being transferred to Caldera, SCO said. This reduction will lower expenses to better reflect SCO’s recent performance in our server software and professional services divisions, SCO chief executive Doug Michels said in a statement. We have worked closely with Caldera to ensure that these actions produce staffing results consistent with its future, post-acquisition business model.

Caldera acquired SCO’s Unix products in August. SCO is renaming itself Tarantella, the name of its software that lets companies run programs on a server so that a multitude of stripped-down thin client computers can tap into it over the Web. No layoffs will occur in the Tarantella business, SCO said. The charge will be recorded in the current quarter, which ends Sept. 30. The acquisition gives Caldera Unix software as well as Linux software. The company intends to make the software run similarly, so that higher-level programs can run on either Caldera’s Linux or UnixWare without having to be modified.

STRONG EARNINGS AT NATIONAL SEMICONDUCTOR

Palo Alto, CALIF. — Chipmaker National Semiconductor Corp., spurred by improved manufacturing operations and a buoyant semiconductor market, reported better-than-expected fiscal first-quarter income of $149.4 million before special items. The company, one of the biggest makers of chips for mobile phones, earned 76 cents per diluted share before special items that included restructuring expenses and write-offs for research and development. That compared with 25 cents per diluted share, or net income of $47.1 million, for the same year-earlier period. Financial analysts had expected the company to post earnings of 65 cents per share for the quarter, according to a consensus of estimates from investment research firm First Call/Thomson Financial. Including the one-time items, the company earned $144.2 million, or 74 cents per diluted share, for the quarter ended Aug. 27.

Chairman Brian Halla, who has led the venerable Silicon Valley chipmaker for four-and-a-half years, said the company four years ago put in place a strategy to combine systems previously performed by several chips onto one for trend-setting data-highway customers. With the surging growth of the Internet, mobile phones and information appliances, that strategy appears to be paying off. “I think they had a great quarter and hope this would help to build investor confidence,” said analyst Mark Edelstone at Morgan Stanley Dean Witter, who rates the stock “strong buy” and has a 12-month price target of $110. “Their execution has been quite good for the past year.”

CYPRESS SEMICONDUCTOR CLOSES SILICON LIGHT BUY

San Jose, CALIF. — Cypress Semiconductor Corporation announced that it has satisfied all closing conditions for the acquisition of Silicon Light Machines, a privately held supplier of microelectromechanical systems (MEMS) technology applicable to fiber-optic networks and other applications. In July, Cypress announced an agreement to acquire Silicon Light Machines on a pooling-of-interests basis, providing 3.7 million shares of Cypress stock in exchange for all outstanding stock and options of SLM. With the approval of this agreement, SLM becomes a wholly owned subsidiary of Cypress. Silicon Light Machines licenses its MEMS-based Grating Light Valve (GLV) technology to Sony Corporation for state-of-the-art display applications. Cypress aims to leverage SLM technology to complement its product and intellectual property portfolio targeted at the optical networking business and to accelerate its penetration of the market for pure optical and optoelectronic networking components. The acquisition also aligns Cypress’s product development roadmap with those of its strategic networking customers.

“The interface between optics and electronics – converting data into light within the system – represents the next great frontier of switching technology,” said T.J. Rodgers, Cypress president and CEO. “With the SLM acquisition, Cypress has purchased an entity clearly focused on this emerging communications market segment, allowing us to venture aggressively into the world of optoelectronics without suffering the bottom-line damage usually incurred by such a large-scale R&D effort due to the Sony licensing funding.” Cypress currently ships approximately three-quarters of its products to wireless and wide area network (WAN) customers. The Silicon Light Machines acquisition is the latest in a series of moves by Cypress to provide comprehensive solutions for next-generation WAN applications, including high-speed switches and routers, and storage and backplane solutions.

PDSI REPORTS 160% REVENUE INCREASE

Columbus, OHIO — Pinnacle Data Systems, Inc., a leading engineering design center and repair facility providing high-end Unix-based solutions for the telecommunications industry and original equipment manufacturers (OEMs), announced record financial results for the 13-week period and 26-week period ended June 30, 2000. For the 13-week period, revenue rose 160% to $6,722,644, compared with $2,587,605 for the 13-week period ended July 2, 1999. Net income for the period in 2000 totaled $293,789, or 10 cents per diluted share, versus $109,920, or 4 cents per diluted share, for the corresponding period last year, which included a one-time, pre-tax gain of $85,922 on the sale of the company’s former office building. For the 26-week period, revenue grew 132% to $11,766,599 from $5,073,245 in the same period of 1999. Net income for the first 26 weeks of 2000 increased by 212% to $479,849, or 17 cents per diluted share, from $153,862, or 6 cents per diluted share, in 1999.

Thomas J. Carr, PDSi treasurer and chief financial officer, said, “This is the fourth consecutive quarter in which we have set a revenue record and the third consecutive quarter in which we have recorded record net income. We believe that we’re seeing the beginning of the payoff of our efforts and our investments of the last four years. Despite doubling our employee staff over the last year and doubling our engineering, production and service floor space since the beginning of the year, we have increased our income from operations by over 300% this year compared to last year.” John D. Bair, president and chief executive officer of PDSi, commented, “We’re pleased with the growth in revenue we’ve seen this quarter and through the first half of 2000, which we attribute to the addition of new customers in the telecommunications market, follow-on orders from customers in the medical systems and process controls markets and improvements in operational efficiency. We’re particularly encouraged by the continuing stream of opportunities we’re seeing in telecommunications as companies invest in new technologies and expand into wireless and Internet voice communications.”

IBM TO INVEST $200 MILLION ON LINUX IN ASIA

Taipei, TAIWAN — IBM, the world’s No. 2 software maker, said it will invest $200 million to build Linux development centers in Asia. The Linux computer operating system is challenging similar offerings from Microsoft. The Linux code is open to anyone to modify and may be downloaded free of charge over the Internet, unlike Microsoft’s proprietary software.

IBM plans to open seven Linux development centers – in Tokyo, Shanghai, Beijing, Taipei, Seoul, Bangalore and Sydney – within the next four years. “With the establishment of these centers and other investments we are making, IBM will aggressively promote Linux applications that will run on our Linux-enabled servers,” Kakutaro Kitashiro, the president of IBM Asia Pacific, said in a statement. The centers will work with local developers to provide Linux application software. In July, IBM announced that it will spend $200 million in a four-year effort to make it easier for European companies to bring their software to Linux.

NETWORKING START-UP STRIKES $350 MILLION DEAL

San Diego, CALIF. — Optical networking start-up Tellium struck a $350 million deal this week to supply equipment to Cable Wireless, the company’s second large contract with a telecommunications company. The contract calls for Cable Wireless to purchase a minimum of $350 million worth of equipment during the next five years, according to the companies. Tellium will sell Cable Wireless its recently introduced Aurora Optical Switch and related technologies as part of the deal. Cable Wireless plans to launch Tellium’s gear starting in the first quarter of next year.

The Oceanport, N.J.-based company is one among several start-up high-end networking companies attempting to spur interest from telecommunications customers for their optical networking equipment. Tellium announced a $250 million deal with Extant last fall. Extant subsequently began launching the equipment in April of this year as part of a 50-city network construction project scheduled for completion next year. This was a competitive process, and we’re delighted to say we won, said Tellium chief executive Harry Carr. We are currently competing for additional business. Some start-ups have included access to potentially lucrative stock as part of equipment deals with network operators. But Carr claims Tellium made no such deal to secure Cable Wireless’ business, though he did not rule out the use of stock warrants with future customers.

IMMERSION BUYS VIRTUAL TECHNOLOGIES

San Jose, CALIF. — Immersion Corp., the pioneering developer of touch-interaction technology, announced it has completed its acquisition of Virtual Technologies, Inc. (VTi), of Palo Alto, Calif., for a combination of approximately $1 million cash and up to approximately 343,000 shares of Immersion common stock, including approximately 22,000 shares of Immersion common stock that may be issued on the exercise of currently vested and unvested VTi stock options assumed by Immersion in the acquisition. VTi is a leading developer of state-of-the-art whole-hand sensing, tactile feedback and real-time 3D-interaction technologies that allow the user to “reach in” and physically interact with simulated computer content. These technologies are intended for mechanical CAD evaluation, simulation-based training and 3D e-commerce. VTi is now a wholly owned subsidiary of Immersion and will continue operations in Palo Alto.

Through this acquisition, Immersion gains VTi’s portfolio of issued and pending patents. VTi will continue to sell its popular CyberGlove(R) line of whole-hand-interaction gloves and 3D-interaction software products, designed to manipulate objects in 3D environments. VTi also will work with Immersion to market these products into a higher volume consumer arena. Virtual Technologies, Inc., based in Silicon Valley, is a leader in state-of-the-art whole-hand sensing, force-feedback and real-time 3D-interaction technologies that allow the user to “reach in” and physically interact with simulated computer content. VTi’s 3D-interaction technology has a wide range of applications for the manufacturing enterprise and the consumer market, including mechanical-CAD evaluation, simulation-based training, entertainment and e-commerce.

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