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Aquantia to raise pre-IPO series F, CEO says; could be a target – analyst and exec by Karsten Strauss in New York and Mark Andress in San Francisco
March 12, 2012

Aquantia Corp, the Milpitas, California-based venture capital-backed semiconductor company, will seek to raise capital this year, CEO Faraj Aalaei said. Phil Delansay, vice president of business development, said this is expected to be the final capital raise before the company goes public.

Capital will be raised from among the Northern California company’s current VC investors, as well as new ones, which Aalaei would not name. He would not disclose when in 2012 the raise would take place or how much capital the company is seeking. Money raised would be spent on product and technology development.

Founded in 2004, Aquantia has raised USD 97m to date since 2005, the majority of which has gone toward chip development. It takes USD 20m to USD 25m to develop new chip technology, Aalaei said. Development costs include personnel, tools and components and a two-year process, Delansay said.

An industry analyst said Aquantia is more likely to be acquired than go public, possibly by the end of this year or next year given that revenue from its product is now beginning to ramp up.

The most likely acquirer would be Intel, said the analyst. Aquantia’s 10-G ethernet technology is used in Intel’s Twinville processor for its new server platform Romley, which began shipments this month.

Other potential bidders might include Qualcomm, Emulex and possibly QLogic, though the two may lack the financial capability for a deal, said the analyst. Less likely buyers are Broadcom, which is developing its own 10- G BASE-T capability internally, while Marvell Technology Group has its own 10-G BASE-T technology through its acquisition of Solarflare, an Aquantia competitor.

An industry executive said Aquantia has an exciting product and a capable management team that could take the company public, but he questioned whether there was sufficient investor appetite to support the IPO of a semiconductor company with a single solution. “There’s no reason why they can’t build on the solution that they have,” said the executive, through acquisitions or development of other adjacent technologies. He added that it would likely need access to the capital markets to fund such an expansion in the first place. “It’s a chicken-and- egg situation.”

Likely buyers, said the executive, would include Broadcom, Marvell, Realtek, which has 1-G switches but lacks a 10-G offering, as well as semiconductor companies such as Intel, Texas Instruments or Freescale. An exit could happen in 2012, said the executive, though much depends on how quickly sales of Intel’s Romley server platform ramp up.

Aalaei told this news service last year that the company was on track to be profitable by the end of this year and it would see growth on the back of the release of Romley, aka Sandy Bridge. Romley’s release was delayed from 3Q of last year to this month. “This obviously has impacted our ramp,” Aalaei wrote in an email. Profitability will depend on the slope of the ramp the company will experience this year, he added.

Delansay pointed to Marvell, which went public in June 2000 after generating USD 21.2m the prior year, as an example of a company similar to Aquantia. Both companies had taken advantage of new technology to develop their products and attract clients, he explained.

VC investors include Greylock Partners, Lightspeed Venture Partners, Pinnacle Venture Partners, VentureTech Alliance, New Enterprise Associates and LSI. The company also has unidentified strategic investors. It has 80 employees.

Other US semiconductor companies that have gone public recently include MaxLinear, which raised USD 72m in its March 2010 IPO. In the year before, it had generated USD 51.3m in revenue, a USD 20.3m increase over the prior year. It currently shows market cap of about USD 184m.

Aalaei co-founded Centillium Communications and took the semiconductor company from seed to a public offering in 2000. Delansay said Aalaei’s experience will help him guide Aquantia to an IPO as well.

Aquantia is confident that its ethernet data transfer technology–which moves 10 gigabits per second–will push it into the lead in its space. Aalaei said the current data transfer technology is about a year ahead of its main competitor, the much larger Broadcom. Strategic investors have approached the company, said Delansay, but he would not disclose the details of the propositions or who has approached. “We’ve not gone unnoticed in the market.”

Since its founding, Aquantia has developed two generations of chipsets and is developing its third now, said Delansay. Aalaei and Delansay would not divulge details about their development process.

The telecom space has seen a fair amount of consolidation in the past few years, Delansay said without commenting on whether Aquantia could take part. Some smaller firms did not forge deals with the suppliers they’d hoped to and their investors exited, such as in the case of California-based semiconductor company Teranetics, which was acquired in 2010 for USD 35.8m by another player in the space PLX Technology. Also, Sacremento, California’s 40-employee semiconductor company KeyEye Communications went out of business in 2008.

Aquantia’s client stable of about 50 suppliers to the ethernet and internet markets includes some of the largest switch vendors in the market, though Aalaei would not identify them. Their relationships with the more prevalent vendors in the space have drawn interest and business from other vendors as well and the company will be investing in doubling its manufacturing team personnel in 2012 and funding its engineering team to develop Aquantia’s 28 nanometer node technology.

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